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has really put that to a full test. to some extent, the obama campaign is credited with all those things they did to exploit social media last time, but they did it in concert with having in iowa, for example, more field offices than any campaign in history had ever had. they were on the ground in more places. we do not know whether there is a fair test or not, and everybody talks about there is a new way to do it or there could be, but nobody has yet put that to the test. >> i also think -- truly, we always talk about every election that there has been no election like this one, but it is hard to compare this time to other elections because in just a matter of a few years, how political campaigns are run and how we cover political campaigns is so dramatically different because of the changes in the media environment and things in changes like -- changes in things like social networking, twitter. it is funny -- you almost did not have to leave your desk to
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understand what is going on on the campaign trail, to a certain extent. because there are so many windows into a given campaign event. of course, we both like to be out there talking to real people, so we will get out there. >> another question about the debt ceiling debate. we did not really get too much analysis about the impact on it, but i wonder, to the candidates -- two of the candidates, michele bachmann and ron paul, will be coming here from washington. they give them an advantage? >> they have both been very strong in their opposition. that will appeal to many people in the base of the party. i think what you have heard from some of the other candidates is a somewhat more equivocal position. although john huntsman this week
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came out strong for the boehner plan and said it was the only plan going and that republicans and everybody ought to get behind it. congresswoman bachmann in particular i think has staked out that tea party position, and she will probably benefit from that. i think the other candidates are trying to get a piece of that but try to go more broadly. >> i think bachmann and paul to a certain extent could risk a certain measure of backlash in the persistence and playing down of the potential catastrophes. what happens if the debt limit is not raised and there is a catastrophe? then, will the tea party and michele bachmann and ron paul be marginalized and seen as extreme by the general public and particularly the gop primary electorate? that remains to be seen. >> we are focusing on the gop primary electorate because of where we are in the race, but the governor talked about barack
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obama's organizing of the caucuses overall. how strong is the president overall with iowa right now? >> i would say reasonably strong, but not as strong as in 2007 and 2008. i goal was his springboard that launched him to the presidency. in almost all of the states where he campaigned four years ago, he is in a weaker position today largely because of the state of the economy. there are disillusioned progressives around the country who were part of the organization that the obama reelect committee is working hard to bring back into the fold and reenergize them, and i think they have confidence that over time, they will be able to get most of them going, but there are also independent voters to have soured on the president, and that is very much the focus of the top advisers on the president. when you watch the speech he gave in prime time on monday night when he and speaker
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boehner went back to back, he was very focused on trying to appeal to independent voters and bring them to his side, but there is evidence that he has some work to do on that front. >> we are in the midst of an interesting time and weaken. thank you for being here to question governor branstad about the upcoming pilot gop events. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011] >> negotiations continue between the white house and congress over a plan to raise the debt ceiling and cut federal spending. the u.s. senate returns today at noon eastern time to continue its work on a proposal offered by majority leader harry reid. a procedural vote requiring 60- vote threshold to move ahead on that proposal is scheduled for 1:00 p.m. live coverage of the senate on c-span2. the u.s. house will gavel in for a pro forma session at 1:00 p.m.
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yesterday on the house floor, the majority leader advise house members to be prepared today to return to legislative work. we will bring the house to you live here on c-span. from fouray, ceo's large corporations expressed support for tax reforms that would lower the corporate tax rate and eliminate special loopholes known as tax expenditures. walmart's ceo also commented on the debt ceiling fight in washington, saying a u.s. default would be devastating to wal-mart customers and the economy. this hearing is an hour and 40 minutes. >> the hearing will come to order. benjamin franklin road, "when men are employed, they are best contented."
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do they, too many men and women are unemployed. our economy rests on the foundation of businesses, big and small, providing the goods and services that the market demands. restamericans livelihood's on businesses providing jobs which are currently in short supply. the unemployment rate is hovering around 9%. poverty has increased 14% -- to 14% of americans now living in poverty, and many who are unemployed have been searching for work for more than a year. these americans need a job and the certainty that comes with going to work every day. in this environment, the business community has an opportunity and an obligation to help get americans back to work.
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businesses need to step up to the plate by preserving good- paying jobs and creating new ones, which means not just waiting for demand to fully recover, giving americans a chance, including the long-term unemployed. we want to make sure our tax code supports efforts to create jobs. our ultimate goal is not simply economic growth for the sake of a or profitability for business owners alone, but job creation cannot occur without this growth. we know the american businesses face obstacles in achieving growth. the economy is slowly recovering from the most significant recession since the great depression. consumers are saving more and spending less. banks are more cautious in their spending practices. at the same time, competition is getting tougher in increasingly globalized economy. major new players are emerging in developing countries. in 1960, exports accounted for
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3.6% of american gdp. today, they account for nearly 12.5%. sales are growing faster in markets outside the u.s. than they are here at home in most industries. in today's global economy, we simply cannot afford a tax code that hampers the ability of businesses to compete and create jobs here at home. we need a corporate tax rule that encourages job creation and widespread economic growth. last year began a comprehensive review of america's tax system to understand how our tax code became so complex. more recently, we have held hearings in coupled with the need for tax support. these hearings have looked at the goals we want our tax system to accomplish and whether it effectively meets those objectives. of course, the tax code should raise the revenue necessary to finance the operations of the
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federal government. we also want our tax system to spur long-term economic growth which could benefit more folks in montana and across the country. and we want it to promote fairness and certainty. americans need a tax code that helps them get back to work. today's witnesses can help us understand the effects it would have on those businesses and their hiring practices. they represent some of the largest employers in our country. i am grateful they are here today with this to discuss whether the tax code imposes undue burdens on businesses and what ideas they may have to help improve foreign investment in the u.s. as well as domestic investment. we are looking forward to hearing what factors drive decisions about whether to hire new employees. we need to identify the policies that the most effective in helping these business leaders create more jobs.
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do we need to support innovation more effectively? do we need to develop a more highly educated work force? how can we level the playing field for u.s. companies competing overseas? how do we reduce incentives to locate new jobs abroad rather than here at home? i ask each of our witnesses to take off your hat as advocate for your company and tell us your experience as a ceo that his heart he was best for our country. so let us focus on how the code can help our businesses create good-paying jobs today. let us work together to improve the tax system to ensure widespread prosperity for all americans. >> thank you, mr. chairman. i would like to thank you for calling this hearing today and welcome each of you ceo's who have come here to participate in the committee was a continuing dialogue about tax reform.
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with so many americans out of work and looking for jobs, it is refreshen to see that your company's collectively employ 1.6 million americans. that is pretty good. today, we are here to learn how the corporate tax affects your businesses. the corporate taxes the third largest source of federal revenues behind the individual income tax and payroll taxes. corporate income taxes or revenues -- corporate income tax revenues as a percentage of total federal revenues has steadily declined since the 1940's and 1950's. during much of the 1990's, corporate tax revenues averaged about 11% of federal revenues. last year, corporate tax revenues were less than 9% of our total federal revenues. the corporate tax is generally considered to be the most inefficient of all taxes. tax scholars have debated for years as to who really bears the burden of the corporate tax.
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we know that although corporations cut the text -- cut the checks to the iris, corporations do not always pay the taxes, people do. so which people -- shareholders, employees? the most recent research seems to indicate that a substantial percentage of the burden of the corporate tax is borne by employees in the form of lower wages by employees. in addition to where the burden of the corporate income tax truly falls, i think it is important for this committee to focus on how the corporate tax system encourages the use of debt rather than equity. if a corporation is in need of additional funds, our current tax system encourages the corporation to borrow money rather than raise money by raising their issuing stock. how is that? in making any interest payments on the borrowing deductible, whereas any dividends paid are not deductible? from a business standpoint, the
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increased use of debt by corporations makes a corporation more vulnerable to the risk of bankruptcy and other downturns in the economy. dividends not being deductible means that corporate profits are taxed twice -- once at the corporation level, and again at the shareholder level. as a result of this tax treatment, we have seen a decline in the use of traditional corporations. in 1980, 75% of all business income was earned by traditional corporations. in 2007, that figure was only 36%. equalizing the corporate tax treatment of debt and equity would reduce or eliminate distortions in at least four ways. one, the incentive to invest in non-corporate business rather than corporate business. two, the incentive to finance corporations with debt rather than equity. 3, the incentive to retain or distribute earnings, depending on the relationship among the
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corporation, shareholders, and capital gains tax rate. and four, the incentive to distribute earnings in a manner to avoid or reduce a second level of tax. we also need to consider once again the issue of repatriation. many u.s. multinational corporations earn money overseas and will typically want to bring that money back home to the united states. however, our corporate tax system discourages or penalizes u.s. multinational corporations, including utah multinational corporations, from repatriating foreign earnings by imposing a 35% residual u.s. tax at the time of repatriation. as a result, several high- profile u.s. multinational corporations are sitting on large piles of cash burn from foreign operations. yet, these same corporations are borrowing money.
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one of the reasons is that their cash is trapped offshore. because of our tax system, these corporations keep their money offshore and borrow money in united states. one way of alleviating the problem is for the u.s. to reform its corporate tax and international tax rules by, for example, adopting a territorial tax system. finally, no discussion of corporate tax reform can conclude the discussion of corporate tax rates. our corporate tax system has a top rate of 35%. when coupled with state corporate tax, the tax rate is usually about 39%. as a result, the u.s. has one of the highest corporate tax rates in the world. our corporate tax system is in need of reform, and the high corporate tax rate needs to be a measured part of this discussion. i am very interested to hear
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what our witnesses have to say today with regard to our corporate tax system and how it affects hiring business practices, and economic growth. again, chairman, thank you very much for scheduling this important hearing. >> thank you, senator very much. i would like to introduce our witnesses. mr. michael d., the president of wal-mart stores, the world's largest retailer, employer of about 2.1 million people. second, the chairman and ceo of kimberly-clark, the world's top maker of personal paper products. next, mr. gregory line. finally, the president and ceo of cvs-kmart corp., a leading drug store chain. you probably know the rules.
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your statements will automatically be included in the record. we encourage you to summarize in about 56 minutes. i encourage you to be candid. life is short. [laughter] alright, mr. busey, why don't you begin? -- mr. duke, why don't you begin? >> i appreciate the opportunity to testify today. we urgently need to modernize our tax code, and i thank you for taking on this issue. the ultimate outcome must be a strong, vibrant, jobs-creating u.s. economy. i hope all of you know your local wal-mart store back in your home state, but let me start with a few words about the company that we run out of bentonville, arkansas. every week, we serve 106 million
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unique customers, about 1/3 of the u.s. population. the business model that has earned the trust of our customers is simple -- we give them everyday low prices by passing on savings from our everyday low cost operations. last year, wal-mart paid $4.7 billion in corporate taxes to the united states, which was 3% of all corporate income taxes collected by the u.s. treasury. our effective corporate tax rate was 32.2%. many companies will testify before you theoretically faced similar tax rates, but we actually pay them. but we are not here to ask for sympathy. the question is not whether or not walmart can get by as a company under the current tax structure. the real question is -- is the structure the best approach for our country?
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we believe that it is not. as we begin this discussion, it is important to understand how walmart's operations at home and around the world contribute to the u.s. economy. in the u.s., we operate over 4400 stores and clubs, and the employee almost 1.4 million associates in the united states. this will happen to say that the domestic business is still growing. every store that we build means new jobs -- construction jobs, and expanded local tax base, and more opportunities for u.s. suppliers. walmart is also growing around the world, which is good for the u.s. economy as well. our international growth allows walmart to source more goods from u.s. companies to sell in our stores around the world. 70% of our top international suppliers are u.s. companies, which creates and sustains
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american jobs. we are also one of the largest purchasers of american agricultural products. last year, we directly exported nearly $40 million worth of washington apples, california asparagus, florida grapefruits, and other crops. likewise, we look for opportunities to use american products as we build stores. like the led parking lot lights, which are mostly manufactured in north carolina. the best way i can say is that when walmart goes overseas, we bring american companies with us. when we grow, they grow. so how do we reform the tax code to drive growth here at home encourage america's competitiveness abroad? my advice is straight forward. lower the corporate rate as much as you can. make the tax base as broad as
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you can, and move to a territorial system as quickly as you can. without any of these three components, it will be impossible to achieve a fiscally responsible, simplified, and competitive tax system. we need competitive solutions, not piecemeal to improve this or that incentive. we will give up existing incentives that benefit us if it means getting rid of them in a reformed system. taking these steps will help american companies compete abroad, and i believe walmart is likely to export washington apples or california asparagus than our foreign competitors. yet, these foreign competitors have an advantage because they less in corporate income taxes. for example, we compete in china against tesco from the
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u.k. with the territorial method of taxation, they pay 40% to china on their profits there and no additional tax when they bring money back to the u.k.. in our case, we pay 25% to china, as well as an additional 25% to cover the differential between the u.s. statutory rate and the chinese rate when we bring that money home. the results as we often outbid for retail sites because companies with lower -- lower overall tax rates have a lower cost of capital. when we do win, we pay more overall. the keys to reform our below work -- to lower the corporate rate, get rid of incentives that benefit some industries over others, and level the international playing field with a territorial system.
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if we take these steps, we will drive the virtuous cycle that i have described with more u.s. exports, more investment, and more job creation at home. thank you, and i look forward to your questions. >> thank you very much. >> good morning, distinguished members of the committee. thank you for this opportunity to share my views on the need for changes in our tax system. i would like to provide a brief overview of kimberly-clark and our global businesses, and i will address the reasons we believe the current u.s. tax system hinders growth and puts american companies and workers at a competitive disadvantage. kimberly-clark will be 140 years old in 2012. we have been around through lots of different tax systems and grow our company through the years. through the years, we have been providing consumers with the essentials for a better life. we estimate that one out of
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every four people around the world use our products every day, and they buy lots of them that wal-mart and cvs as well. i would expect that everyone in this room has used a kleenex or change a diaper at some point in time in their lives. we will not ask for a show of hands. we are also a leading provider of safety products that help protect workers in the environments in which they work. also, if you have been in hospital, you would find that medical professionals count on kimberly-clark for products essential to the health and hygiene of their staff. so our company touches people's lives in many parts of the economy. our consumers live in more than 150 countries, so we have to have a global presence to serve them. because many of the products we sell are lightweight, bulky, and costly to ship, we have to many
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of our -- manufacture our products close to where our consumers live and work. the u.s. market is our larger, but the categories there in which we compete armature, often growing at the rate of population growth. like many companies, the developing and emerging markets represent many of our biggest growth opportunities. mothers in the u.s. need about five that is a day to care for the babies. in developing markets, they may only use five diapers a week. this opportunity will represent a huge growth opportunity as these economies grow. to be successful in any market, businesses need fertile ground in which to grow. the fertile ground needs access to skilled employees, reliable availability to energy and other available resources, and a competitive, stable, and predictable tax and regulatory environment. i would like to now address the three key ways we believe our tax system could improve the fertile ground in the united states and lead to more investment, job creation, and economic growth in our country.
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first, we need to have a more competitive tax rate. the combined rate in the united states is about 39%, was significantly a seat -- exceeds the rates around the world. in the competitive global market, u.s. companies are at a significant disadvantage compared to non-u.s. companies, who benefit from lower tax rates in their home countries. 39% here, 25% elsewhere. when a u.s. company seeks to grow outside their country, we are way behind before we even get started. second, taxation of worldwide earnings. in addition to the high tax rate, the u.s. taxation of worldwide earnings of u.s. companies. most countries do not tax their local companies in a similar manner. the current system creates an incentive for companies to leave
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their cash outside the u.s. if we were able to freely bring our foreign income back home to the u.s., we would have the freedom to invest those earnings in product development, new capital spending, or return to our shareholders, who could invest in the u.s. economy. cash trap that said the u.s. is more likely to be invested overseas, creating foreign instead of american jobs. the current tax system causes many u.s.-based multinationals to delay bringing their foreign earnings back home. rather than restrict the free flow of capital, we need a territorial tax system that encourages companies to deploy capital in manner that supports the needs of the businesses and creates jobs. third, we need to simplify our tax rules. it is no secret that our u.s. international tax system is highly complex. you may not know that i was a cpa once, and i actually completed corporate income tax returns early in my career. the complexity of our current tax code is now understood by only a handful of international
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tax experts. this complexity requires u.s. companies to devote significant resources just to try to comply with the rules. the time and money spent on these activities take away resources that could be spent on product innovation and market growth. we need a system of international taxation that reduces the cost of administration, reduces the risk of error, and is easier to monitor. i do not know if we will ever come up with a system so simple that even i could fill at kimberly-clark's tax return again some day in the future, but that is a worthy goal. american companies have a terrific base of talent, an unrivaled track of innovation, and some of the greatest products and brands in the world. unfortunately, we are disadvantaged against other global competitors as a result of the tax system. to continue to prosper and deliver the essentials for a better life for consumers for another 140 years, kimberly- clark must grow both at home and around the world. we're committed to creating jobs, developing innovation, and
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reinvest for future growth everywhere we do business. to do this, we need a tax system competitive with our global competitors. we need a tax system that is less complex and easier to administer, and a system that does not penalize us for earning money outside the u.s., but encourages us to redeploy freely for growth. mr. chairman, this is an important debate. many businesses face decisions about growth. you and your colleagues have an opportunity to create a level playing field for u.s. businesses to compete and win on a global basis. thank you for the opportunity to share my views on creating a tax company that supports global companies and that enables the growth of the american economist. i would be pleased to take any questions you may have. >> thank you very much. mr. lang, your next. >> i am the president and ceo of pmc-sierra.
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we are a leading semiconductor innovator transforming networks that connect, move, and stored digital content. multiple member of the semiconductor industry association board of directors and share of the sia's tax reform working group, so i can offer perspective on the industry as well as a midsize technology company. i would like to thank the committee for the opportunity to present our views on how the u.s. v tax code can promote growth for our country. .
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today the u.s. i have holds 50% of the share and the u.s. exports 80% of our revenue today is export revenue. finally, the semiconductor industry is a key driver of u.s. innovation. the industry invests 17% of revenue in research and development, and an amount higher than any other sector ship companies account for 7 of the top ten patent companies in the u.s. in short, maintaining u.s. leadership in semiconductors is in our national interest
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and should be made a top priority of the congress. tax reform is one part of an agenda to ensure that the u.s. remains a leader in innovation and economic growth. given the strategic naep bore of the chip industry, other countries are targeting our sector with credits, grants and reduced tax rates. in fact, china has specifically included our industry in their latest five-year plan with a number of incentives focused on drawing more investment in china. to maintain u.s. leadership our country must have a more competitive global tax structure. for example, it cost approximately a billion dollars more to build and operate a semiconductor manufacturing facility in the u.s. compared withing other countries. now, despite the perception, that may be due to labor differences between a high and low labor rate country. in fact, the main cost differences are in tax benefits and other incentives. to achieve a more
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competitive tax environment for the u.s., fundamental reform is necessary and must focus on three key elements. first, the u.s. should adopt a globally competitive tax rate. the average rate is 25%, and for pmc our emerging competition is in china where the rate is approximately 15% for new technology businesses n contrast, the combined corporate tax rate here is 39%. many countries offer substantial tax holiday inn sen tiffs tiffs for new high technology investments which lowers the rate to zero or single digits. while the u.s. need not much match these incentives tax reform must be competitive with rates of competing countries. second, or worldwide tax system creates and disincentive for companies. tax reforms should include a move toward a territorial approach, enabling companies to repatriate their profits, to invest and create jobs in
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the u.s. the u.s. is the only major oecd country with a global tax system combined with the highest tax rates this is a penalty for companies competing on a global scale. finally, the tax reform should provide strong and permanent incentives to encourage research and development in the u.s. r&d is the lifeblood of the semiconductor industry but the r&d tax credit in the u.s. is weak compared to our global competition and has lapsed 13 times in the last three decades. the current r&d credit is complex and unreliable. given the competition for investment and jobs around the world, it is insufficient to encourage r&d job growth here at home. the semiconductor industry was invented here, and the u.s. can remain the leader, but industry leadership is not an entitlement. it's not guaranteed. pmc must compete day in and day out and we have proven that we can compete and win
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on a level playing field. just as government policy supported this critical industry in the 19 80's when the u.s. semiconductor market was targeted through harsh trading practices, corporate tax reforms can help maintain the future and pace of american enterprise and innovation. i will be happy to answer any questions. >> thank you. >> good morning, and thank you for holding this important hearing today and for allowing cvs caremark our opportunity to share our views or tax reform. cvs is the leading pharmacy in the u.s. and we are dread kated to helping americans achieve their best outcomes. we employ over 2,000,000 people in the u.s. and we have the high effective tax rate of 39%.
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some think of us as the leading drugstore chain because we operate more than 7,200 pharmacy stores in 44 states here in the district and and puerto rico. in fact, 75% of all americans in our markets live within three miles of one of our stores. others live near a pbm and pbm's assist health plans and unions and governments to design prescription drug benefit options that best meet their members' needs and help drive down costs. that being said, we think that cvs a more than a pbm and a drugstore chain. we consider ourselves a part of the fabric of american society, working to improve the lives an health of our customers, and to provide those services at the lowest possible costs. because of that thinking, we have made significant investments in our people and in our infrastructure here in the u.s. we believe that is our obligation as part of the american business community.
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now, as a measure of our commit many over the past five years, cvs has reinvested more than $10 billion of our earnings in our domestic operations and our employees but we do believe we can do more. our company is committed to making significant future investments in our service offering, our technology, our people and other improvements to our infrastructure and operations. tax reform is important to cvs because it will lower our cost of capital and enable us to make greater investments in our business. the key component of any tax reform is a reduction in the maximum corporate tax rate. such reform would specifically allow us to accelerate our investments in jobs and in our infrastructure, and the return on those investments will benefit us all in the form of lower overall health costs and better health outcomes for consumers.
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cvs income tax rate is a 35% and our combined federal and state effective tax rate is approximately 39%. together with our more than 200,000 employees, we generate federal payroll and corporate income tax revenues of approximately $3.7 billion annually, and more than $4.3 billion when similar state, local payroll and income taxes are considered. now, we have a high effective tax rate for two principal reasons. the first being that many of the tax policies that help industries have limited application to cvs caremark. and secondly, we have consistently chosen to reinvest and create jobs in the u.s. in order to continue to be successful in and increasing lig global marketplace, cvs must control costs, raise capital and efficiently reinvest our earnings.
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although we have worked hard managing our operations an controlling costs to provide both capital for our business and returns for our shareholders, our high effective tax rate not only limits the amount of available for reinvestment but makes cvs less attractive to global investors. reducing the maximum rate to create a more competitive structure for u.s. corporations so we can effectively compete is both a thoughtful and responsible policy move. as i stated earlier, cvs is dedicated to improving care and lowering costs for millions of americans. lowering the corporate tax rate will accelerate our investment in u.s. jobs an infrastructure, all of which will help us lower overall het care costs and grow our economy. o i would like to thank you members today an answer any questions you might have.
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>> i think there is a general feeling in the congress that we need to reform the tax codes to individuals as well. there are so many taxpayers now compared to years ago and the reform today is broaden the base, be more territorial and so forth. that's sort of in the an stract of what need -- in the abstract of what needs to be done. the ne question, though, is if that is all pursued, to what do we owe that to more job growth in the u.s. versus overseas? if the corporate base is lower, a lot of tax expenditures are eliminated, and certainly profits are higher, and you get more flexibility of where to
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locate your plans an operations, et cetera. a lot of americans are going to be thinking with the rates so high, gee, that sounds nigh, about what assurance do we have that as a consequence of this change there will be more jobs in the u.s. rather than more jobs everseas. let's start with you mr. duke and see if you can touch on that. >> thanks, mr. chairman. first off, i would say that in the growth overseas, when walmart grows overseas, we bring them american companies with us, and i would welcome any members of the committee and travelers to other markets to let us show you a walmart store and the products that are in a walmart store in countries outside the united states, so not only whether it's the agriculture products that would come from the u.s. or
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u.s. beef that we export to markets around the world, but to those products that are on the shelves that are produced by american companies would be an example. the other would be even here in the united states and the growth and opportunity here in the u.s., since we operate and build retail stores, our employment is at store level. we're not manufacturing the product but we deliver directly to the consumer, and in that relationship with the consumer, we certainly have more opportunity for growth to more consumers here in the u.s. one -- >> so essentially you're saying there will be more jobs created in the u.s. than overseas? >> absolutely. >> with these changes? >> we would do both. >> there would be more in the u.s., though. that's my question. >> for a store that's open overseas, clearly it would be some of both. i'm not able to quantify one compared to the other because we open small stores and large stores but it will
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create jobs in the united states to support stores that are opened outside the united states. >> mr. falk. >> i will build where mike took off. ultimately you want u.s. business to be competitive in the global market. you can say what happens if we do nothing and the rate continues to widen? we will always see rates continue to go down. that means american businesses are less competitive and we will see job loss over time. getting us back to the level playing field is critically important. from kimberly-clark's perspective, we do all our research in the u.s. as we grow overseas we do more r&d here. we bring back 350 million a year on intellectual properties owned in the u.s. so as our business grows shall we will do more r&d and have more support for that in the u.s. >> just to build on the r&d perspective, in 1990, the u.s. had the number one rr.
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r&d tax credit in the world. it was a model for many around the world. today it is effectively number 24 r&d tax credit around the world and this is an area where having the incentives to actually develop in the u.s. has a real impact on decision making. i will give you one small company example which is my own. we in the last year, 2010, added about 20% to our employee base, so about 20% higher, which is very good given the economic climate, but only -- that's the good news. the bad news is only about 15% of those were in the u.s. and a lot of folks might immediately conclude those jobs were sent overseas to india, to china, but, in fact, a third of those jobs actually went to canada where they have one of the most aggressive r&d tax credits in the world. i think our brothers up north have something maybe that we can learn from here. it's not the only decision made in terms of where to
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hire, but they have done an effective job at neutralizing some of the differences between geographys and making it an incentive to invest in their local market. >> mr. chairman, since we are a domestic company, i will only talk about the u.s. and i will cite two examples in my remarks when i talked about accelerating ing vestments in our infrastructure and creating jobs shall when you look across the healthcare space, we have a problem. there is about $300 billion that is spent annually on unnecessary medical costs as a result of poor compliance and adherence of prescription drugs. we believe we can accelerate our investments in terms of bringing products and services that are solutions to that problem that will improve the health of those we serve, and at the same time, we lower the overall cost of healthcare across the country. a second example i would cite, many of you know that we operate the largest number of in-store retail
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clinics. today we have about 600 of them. we have plans to double the number of clinics over the next five years. we believe that that provides an important source of primary care, acknowledging there is a short of primary care physicians across the country and that is expected to get worse. we believe we can accelerate our investments in the growth of retail clinics and again provide a service to americans across the country. >> thank you. >> mr. hatch. >> thank you, mr. chairman. this question is for the entire panel. ideally, tax policies should not distort business decisions but unfortunately, the current u.s. tax code does exactly that. it is highly distortive, characterized by a high statutory rate, lopsided incentives that encourage the use of debt instead of equity. i said in my opening remarks and it discourages or penalizes u.s. multi-nationals from repay
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treating foreign earnings back to the united states where they can be invested and create u.s. jobs. my question is, isn't it true that lower corporate taxes would create more investment opportunity in the united states? it would seem to me that a lower u.s. tax rate makes it more likely that proposals for investment in the u.s. will meet your targeted rate of return, and that makes it more likely than an investment that would be made here, which in turn would support the growth of u.s. jobs. am i wrong about all this? that is to you, mr. duke. >> senator hatch, you are absolutely correct. comprehensive tax reform and a lower overall rate would create more incentive and more desire to invest, and i think that's what we're is the creation of jobs and come pet tiffness for u.s.
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companies. we agree. >> to build on mr. duke's comments, a lower tax rate lowers the cost of capital and that makes more projects attractive. as we lower the rate in the u.s., it would make more projects attractive to us in the u.s. >> for a global business, i think lowering the effective tax rate allows us to invest in the u.s. without being penalized. i think today it is a penalty. >> and from the cvs caremark perspective, this would help us accelerate our investments as i acknowledged in terms of bringing products and services to market faster and in a more robust fashion. >> thank you. just a quick follow-up question. mr. falk, you note in your testimony that there have been proposals recently to, quote, move the u.s. tax system further away from competitive global norms, unquote, by ending deferral of u.s. tax on a u.s.
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company's foreign earnings. that's been a suggestion by some in this administration. now, this would actually burden u.s. companies with an even higher set -- even higher tax rate. it seems to me that we can't create the type of jobs that we desperately need if the tax code punishes companies that are headquarters here. would you comments further on the effect this would have on your company and on the u.s. economy and also, if there were an accompanying tax rate reduction, that were significant enough, would that make the repeal of deferral acceptable? >> well, you're certainly right that ending deeg feral would add further complexity to the tax code and drive up the cost for multi-national companies. it would be viewed as anti-business by the largest financials and the challenge would be how do we get to the national global tax system with a competitive rate that would be more
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after tore ial system and that would set american companies up on an even keel with multi-nationals around the world. >> thank you. let me ask one other question and this could be a question for the entire panel. the grand deal i hear being proposed by all of you gentlemen is that you are willing to have a broader tax base, meaning getting rid of a lot of tax expenditures, credits, et cetera, in return for a significantly lower tax rate. that is a grand deal that interests me a great deal. i would like to help you with that. however, i do have a concern i wanted to probe to see if you had similar concerns. what if we agreed to get rid of a lot of tax expenditures and you get the corporate rate down to 25% or even lower, for the first year of tax reform but what if congress over the course of the next few years increases the corporate tax rate back up to 30% or even back up 35 miles per hour but without the various tax expenditures. does that concern you?
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there is concern that a good part of the good part would be temporary but the bad part for good. how do you address is that? >> american companies are at a disadvantage today and we do believe we need to move ahead with the comprehensive tax reform. clearly i believe it would be important to remain competitive and it would be very, very important to measure overtime the competitors and ensure that american companies stay competitive. it would clearly not be in the interest of american jobs to then increase that time and we would clearly not want to see that. >> just to build on mr. duke's answer, one of the challenges of running a business today is the uncertainty and it would be coupled with a tax decision that would make us
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competitive in the global marketplace and keep it that way for a long, long time. >> that's right. >> and i think that certainty is similar to the example i give on the r&d tax credit expiring 13 times over the last 3 decades. it is hard to plan your business with the uncertainty of having to go through that question mark every few years. >> i empathize with you there. >> i would emphasize the point that having certainty and predictability in terms of being able to make our business decisions is one of the key elements of overall tax reform, and would certainly, you know, we encourage that. >> thank you very much. next. >> thank you very much. i want to follow up on the r&d tax credit. i couldn't agree more. it should be permanent. we have worked on that, a number of us, trying to make
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that happen but when we talk about the three prongs in terms of tax reform, one is eliminating tax expenditures or spending through the tax code, and so i guess my question would be, as we look at this, how would you recommend that we evaluate tax expenditures, r&d tax credit is a tax expenditure and it is a very important one, i believe, and certainly wouldn't want to eliminate it, but when we evaluate all of this, to me, it is very much about focusing on incentivizing innovation, research development. i also think incentivizing manufacturing in this country is important, coming from a state that makes things, and in the recovery act, we have to champion the tax credit to incentivize a 30% tax credit for making things here, for clean energy, so i wonder if you just might speak as we are
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reforming tax expenditures and looking at all of this, you know, how should we decide which ones to keep and which ones to eliminate, because i'm assuming wow not want to eliminate all of them. >> thank you for your support, and recognize the importance of this part of our tax code, but i believe that the challenge on the tax code in general is a multifaceted challenge, as you're well aware, and our basis, and our interest is getting to a point where the package, the overall system is something that allows us to compete globally, and so when we're talking about r&d incentives as well as the corporate rate as well as a territorial system, we should look at how do we as a country enable our companies to compete most effectively. that is in the form of many different dimensions but i think very clearly r&d
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incentives are being targeted by, you know, very aggressively by certain countries who would love to have our r&d jobs relocated to their countries, so it is imperative for us to not stand by and let that happen but to put a competitive system in place that allows us to invest at home and not be penalized for that. >> so how do you do that? >> mr. chairman, i was thinking on the same wavelength because how do we do that? on the one hand, we're talking about lowering the rate and eliminating tax extend tours or tax incentives and we have a big one called an r&d tax credit that is very important and i would argue looking at other countries who we are competing with, places like germany, which is high wage, high cost but major manufacturing incentives and they are taking our new clean energy manufacturing because they have manufacturing tax incentives, so -- and i would welcome anyone else who would want to respond as well. how do we do that while
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legitimately dealing with the other issues you raised, at the same time knowing that we are competing because there are trax incentives in other countries. >> i will speak next. i guess my advice, and this is not an easy challenge, is to focus on getting the rate as low as you can, and to get competitive with global economies around the world, because the marginal rate is where a lot of investment decisions get made and so having a low marginal rate is much more important than incentive packages and i would say when it comes to making a choice between the marginal rate and an additional incentive package, i would choose the lower rate and get rid of the incentives. >> do you agree with that if it meant the r&d tax code? >> i think having a competitive rate is important and r&d incentives an research funding in this country have been a foundation for the i.t. industry that has propelled
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growth for this country over the last couple of decades. we need to be competitive as a country or we stand to lose something that, you know, was invented here. >> not to be argumentive but that's our dilemma, is to be looking at competitive rates, globally, but at the same time, the incentives are also being given around the world, because we are losing, because there are incentives being given in other countries, and again, mr. chairman, on the manufacturing front, which i know you know i care deeply about, we are facing dilemmas because of both financing mechanisms and tax incentives around manufacturing and i want to make sure that once we're done, mr. lang, with your r&d, that you're making everything here as well, and so that's my question as to how we do that. thank you, mr. chairman. >> thank you. >> mr. lang, thank you for
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recalling that the semiconductor industry is so important, and you remember about 20 years ago when all that business was about to go offshore, and when the united states decided that it was going to stop that trend, it put together a consortium called sim tech and proof is in the pudding which you just told us, so congratulations. i wanted to ask mr. duke, in your testimony, you said "in our view, the commission's corporate tax proposal represented a very good start because it endorsed these three components of reform." there's a version of that that is circulating right now, which is the gang of six, and it basically gives huge deficit reduction back
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to the committee's of jurisdiction, thing biggest deficit reduction would come back to this committee. tax reform, what you all have all testified to, health reform, et cetera. now, a big part of that tax reform is taking all of these tax preferences, otherwise known as tax expenditures, and getting rid of a lot of them, and instead, taking that revenue that you gain from that, and then allowing the tax system to be reformed and to do just exactly what all four of you have testified, which is bring down the rates for everybody, and simplify the
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tax code. as a matter of fact, one proposal is simplified into three brackets for the individuals and lower, of course, all the rates considerably, as well as the corporate rate. now, my question to you all is aren't you going to be stepping on sensitive toes when you get rid of all those special tax breaks? otherwise known as tax expenditures, so i'd like your comment on it. >> senator nelson, first i have to say that i'm not familiar with the specific discussions that you referred to that are taking place at the moment, so the details of the current dialogue, i couldn't speak to. what i can speak to, though, is this broad topic that you're really asking about, and we do believe that comprehensive reform does mean that willingings in to put everything on the table,
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including all of those tax incentives that you're referring to, and we think for the overall rate to be lowered and needs to be in the mid 20 range to be competitive with other countries that we're competing with, then it will require some difficult decisions around those incentives and we do think comprehensive reform involves reviewing all of those in a very careful way. >> senator nelson, i guess i would build on that and say our nation is facing a crisis, and in a crisis, you can get amazing things done. every one of us as a c.e.o. has faced that at some point and you can drive a lot of change in a short period of time and get things done that were thought to be impossible. i urge you to be bold and come up with a tax system that makes american companies more competitive and get things done that couldn't be done in ordinary
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times. >> it is kind of like the package that becomes the whole, the whole becomes greater than the sum of its parts but the sum of its parts are a lot of special tax preferences for individual interests that are not going to want to give it up, including preferences that are newer to the benefit of the four of your companies. >> to be specific, senator, we do most of the r&d in the u.s. and we do a lot of manufacturing in the u.s. i take advantage of the manufacturing credit. i would trade both of those for a competitive global statutory rate. >> you've got a separate area, and if this all came to pass and came back here to the finance committee and we had to start doing some serious looking at where you take things out of the healthcare system, particularly medicare and
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medicaid, you want to make some suggestions? >> well, i think that, you know, similar to the discussion that we just had to the previous question in terms of, you know, there are going to be puts and takes, and i think that is also true with our healthcare system and specifically medicare and medicaid. i acknowledge one of the challenges that we have, and i think we have many opportunities to address the cost of medicare and medicaid and at the same time address the necessary costs an wasteful spending that we're seeing. there is more than 100 million spent unnecessarily as a result of medical costs for prescription adherence. i would address both of those as potential solutions to that challenge, recognizing that there are things that we can do to take costs out of the system, and at the same time, you know, keep americans healthier.
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>> thank you. >> thank you. >> thank you. mr. chairman, this has been a very helpful hearing. i also want to note before we start, mr. falk, that as the parent of three-year-old twins, i'm still stocking up on those diapers. >> thank you for the business. we hope we have 100% share in your household. >> i'm sure you are doing well. >> mr. chairman, i think you put your hand on the key question that people are talking about, and that is how is this going to affect jobs? that's what everybody is focused on, at the kitchen table or anywhere you go. i want to ask a very specific jobs question. if you all as part of tax reform were to give up tax
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deferral, that is the break, of course, that you get when you're doing business overseas. you defer paying tax until you bring the money home, and all of that money, all of that money was brought back to our country, and used to slash rates dramatically when you're doing business in the united states, so that we would be able to say you're then competitive with everybody around the world. wouldn't that be a significant boost for job creation in the united states? >> sir, i think our position has been that each of these steps would be important, but it's important to look at the whole picture, and that's why we have continued to focus on comprehensive reform operating on a global
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basis, so we are growing in the united states already and we want to continue that growth. i would say that competitiveness here is very, very important, also. one of the retailers, our competitors, that has been growing in the united states in recent years is tesco that i mentioned earlier, a u.k.-based retailer that does have an overall lower rate, so growth in the united states and around the world is important and it should all be blocked at together. >> the reason i asked the question said that your effective tax rate for 201 100 was 3 a so if you used those monies of deferral for jobs in this country, your effective rate would go down considerably. you would be certainly in the mid to low 20's.
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that's why i'm asking the question. let's just go down the linux in my situation, if you look at different markets around the world, our categoryss are growing in different rates. today moms that use five diapers a week in emerging countrys will be using five a day, so we do a billion in china just to meet the demands of consumers. for me, it is more about creating a system where we have free trade, free flow of capital, economies that have that thrive and prosper and having a level corporate tax rate would be dependent on that. >> mr. lang, we touched on this yesterday. >> yes, we did. i would say that having a system that allowed companies to bring the dollars back to the u.s. and put them to work in the u.s. can only be positive. looking for overseas investment does nothing for us. bringing them home is a
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positive for u.s. jobs. i think the he key question, though, comes down to what is that rate and is something in the low 20's really going to make it competitive with the other markets where we compete? i think we all probably have different countries, different places we compete and different rates. in our business, most of the places we compete are in the 15 to 17% statutory rate and as we know with other incentives those rates can be lowered. my concern about that would be finding that rate that would make it competitive or make it neutral, and i think it would be below that low 20% range, but i think the general concept would be very positive because it would simplify life and bring the dollars and put them back to work in the u.s. >> again, acknowledging that we're a domestic company, some of your question really doesn't specifically apply to -- >> you're at a 38.9%
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effective tax rate, according to the finance committee's figures, so under this, for job creation in the united states, you would be one to see a very substantial rate reduction. >> and i think that that supports our goal of, you know, doing more in terms of products and and services and accelerating our investments in our infrastructure which will create jobs. the question to my other panelists, i certainly concur with them, and i think that, you know, overall tax reform that does benefit multi-nationals in terms of bringing those dollars back to stimulate economic growth accompanied by, you know arc meaningful corporate tax rate reduction means all the sense in the world. >> my time is up but i want to say it has been interesting working with you, mr. chairman and senator hatch on that point senator hatch made with respect to when wye have a baucus-passed tax reform bill that we have some way
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to try to keep in place that good work and we don't unravel it so as to create uncertainty again. i thought senator hatch's point is a very good one. >> thank you. senator menendez. >> thank you, mr. chairman. gentlemen, thank you for coming. i have read your testimony with interest. let me start with mr. duke. you have my former chief of staff working for you now and i can come to be proselytized because if he read one more e-mail that says save money, look better , wow. talk about branding, i'll tell you. it is ingrained in my brain. he does a great job for you and did a great job for me. let me pick up on a point that we had a hearing yesterday and it was a deficit hearing. and my colleague, senator
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conrad made a -- what i thought was a very good point. he pointed out that interest rates matter. and he said a sustained one point increase in interest rates would cost the federal government more than a trillion dollars over the next decade. that's from the governmental side. and i noticed that you were one of those c.e.o.'s who signed the chamber of commerce letter warning of the danger of default and, in part, that letter says "treasuries, securities influence the cost of financing noth just for companies but more importantly for credit cards and student debt and there would be a host of unintended consequences. " so my question is, beyond what it will cost the government, what would be the impact of a default on interest rates for your
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customers, and if they are increased by the self-inflicted wound of a default, which we still hope and pray we can prevent, what do you think that would do to the purchasing power and on your sales in companies like yours? >> senator menendez, thank you again for our comments about our colleague, and i appreciate the training ugh provided and that worked very well. related to this, i would have to first represent our consumers, our customers that are shopping in the store, as across america, they're watching the events take place here in washington and there is both the real and the perceived and i think both reality and perception have to be considered. higher interest rates clearly would have an effect on consumption, and so the ability of the consumer to regain confidence, to start then reinvesting themselves as families across america is important.
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a default and the ripple effect, i think, would be impactful, and representing our consumers that we think that would be very, very difficult for the american economy to withstand at this point in time in our history. the other factor is consumer confidence. i'm out every week talking to customers in our stores, and when i'm talking to the customers that are slopping in our stores, -- shopping in our stores i'm not getting a source of confidence. when i measure confidence with our consumers and with the job situation and other factors facing consumers, i think a default at this time would be devastating in that both reality and perception of consumers. >> i appreciate that. i want to follow on with my colleague, who i think was referring to the repay treation of foreign
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profits and i understand that cvs caremark is not necessarily in that category but you say you're paying almost an effective a 35% rate, and in essence, by paying a high effective rate, it seems to me that your company and others similarly situated is basically pating for the burden of loop -- basically paying for the burden of loopholes, so do you believe that aggressive use of avoidance methods by competitors or the ability of companies to be able to take their overseas earnings and convert them into tax benefits here at home that ultimately provide them with a much lower effective rate and you still paying a higher refective rate is a fair set of competitive
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standards? >> well, i think it certainly does create some competitive challenges for us, acknowledging that we compete with domestic companies as well as foreign nationals that, you know, have the opportunity to have the lower tax rate, and i think that it goes back to the theme of this hearing in terms of, you know, we support an overall, you know, corporate tax he reform review that would reduce our overall rate. you know, i would like to go back and just tag on to somethinging will duke mentioned about consumer confidence and bring us back to the healthcare space, because we do see evidence of consumers today making decisions about when to get their maintenance prescription for a chronic condition filled and we see evidence that they're getting it filled later, which means they're not taking their medications as prescribed and in many cases, you know, dropping off those therapies, so, you know, we would be very
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concerned with any additional declines in consumer confidence and the impact that that would have on the health of americans. >> i appreciate that. i would like to work with the chairman in our effort to repatriate and induce companies to do so, but when i hear that the choice is 5% as the rates of return on that money, it is hard to tell somebody from new jersey, who is paying 25% or higher in a tax bracket that we're going to do a 5%, you know, rate for repay treation of foreign corporate assets an unless there is some job creation that is tangible, because the last time we did this on a holiday basis and we didn't really get the jobs. i think it is a problem and i want to add a trillion dollars to private sector
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but do it in a way that creates the jobs at the end of the day. >> thank you, gentlemen, for your testimony. >> thank you, senator menendez. >> thank you, mr. chairman, for holding the hearing today. senator hatch, i appreciate our witnesses being willing to offer your expertise and insights. i think it's interesting that all four of the witnesses today agree on both the urgent need for tax reform as well as the direction in which we need to move and that is a lower corporate rate and a territorial tax system that doesn't impose a second layer of taxation on the u.s. companies and also pointing out that the united states really is an outlier when you look at that. we have the second highest corporate tax rate in the world and of the g8 nations we are the only one that has a worldwide tax system. i think the combination of those factors make it difficult for u.s. companies
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to compete and as we look at shaping a tax reform bill, i would hope that we would take into consideration the temperature that is provided by our witnesses today and look at lowering rates, broadening the base and putting american companies in a position where they can compete better globally. just a question, and this is maybe a tough question to answer, and i throw it out there to anybody, but i'm interested in knowing from each of you if there is any targeted tax benefit that you would be willing to give up if it were necessary to do so in order to lower the corporate tax rate to a level competitive with other countries. what do we do with tax preferences? if we close some of those loopholes or in order to be able to lower rates we may have the necessity of closing some loopholes or doing away with targeted tax benefits. i'm interested if any of you have observations about anything you would be
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willing to give up? >> we are willing to look at every benefit and believe that they all should be on the table for discussion, and we do, as a multi-national company, receive some benefits and we're not into heavy r&d investment as a retail company, but there are benefits that we receive today that should be looked at as part of an overall comprehensive plan. >> i guess i would add that i believe it is possible to have revenue neutral corporate tax reform. we know the fiscal crisis isn't easy and this shouldn't add to it, but i think everything should be on the table, and again, i would err in favor of lowering the rate, and if we can get the combined federal and state rate in the u.s. down to 25% which would imply a federal rate of 22 or 23%, then i think a lot of these incentives become much less important. >> one of the hallmarks of the increasingly global nature of the u.s. economy
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is the fact that larger and larger percentage of the revenue of our u.s. business is earned outside the united states. now, there are those who view this as a negative, and an indication that u.s. companies are moving operations abroad, and there are others, i think, who believe it is a necessity in a world where 95% of the consumers are and 75% of global purchasing power are outside our borders but could each of you describe briefly or discuss what this greater reliance on foreign revenue means for u.s. jobs and do you view that to be a positive or negative thing? >> i'll start. in the semiconductor industry, we're already 80% overseas so we kind of live and breathe this type of an international footprint every day, and i don't view it as a necessity. i think it's an opportunity. it's an opportunity for
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things -- for us to take things that we inhaven't here or that we grow here and offer those products and services around the world and benefit from that and leverage u.s. jobs and u.s. efforts to realize those gains, so this is certainly not evil and not a necessity, but it is a wonderful opportunity because the growth potential outside of the u.s. far exceeds what is inside of the u.s. so we should pursue all of those. >> anybody else care to comment on that -- foreign investment, good thing, bad thing? >> i think it is a good thing. we want the u.s. to be a good place to invest and want u.s. companies to be competitive players in the global economy, and so as economies outside the u.s. are growing faster we want u.s. companies to be winners in those markets as well. that's got to be good for jobs in the u.s. long term. >> this is for, i guess, mr. duke, because your company is in the retail
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business. you have high effective tax rates. what does it mean when you compete abroad against companies that are not u.s. based? i guess it comes back more specifically to the question that when your major -- who are your major competitors and what challenge does the tax system present for you as you seek to expand new markets around the world? >> senator, i can quickly name three large multi-national retailers that we compete with around the world. tesco from the u.k. and metro from germany and it's interesting, because we are often competing for specific real estate sites to build new stores in markets around the world and that means that there is an advantage of the calculation of return on investment. their return would be at a lower rate.
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as an example, tesco in china we could compete against frequent lip and the 25% tax in china is all that tesco would pay. we pay the 25% and then the additional 10% as far as the u.s. rate. also, it comes into play to even acquiring a business, and then, as i mentioned, tesco is now building storges and growing in the united states, so we're actually opening the door for foreign retailers to have an easier entry to compete in the united states against u.s.-based retailers. >> senator, i think mr. duke is spot on. the only thing i would add is that we have other companies out there that, you know, that operates, you know, food/drug combos here in the u.s. and the same principles that mr. duke mentioned apply, and create some competitive challenges. >> thank you. my time has expired.
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thank you, mr. chairman. >> thank you. >> senator conrad. >> thank you, mr. chairman. thank you very much for holding this hearing. i think it is so important. i was part of the fiscal commission, as was the chairman of the committee. i have been part of the group of six. both of them concluded you got to have fundamental tax reform, to broaden the base at lower rates, help us be more competitive, at the same time raise additional revenue to couple with entitlement reform and to couple with he domestic spending reductions in order to get our debt down. that is the fundamental framework of both the fiscal commission and the group of six. i just would like quickly to ask each of you, does that fundamental framework make sense to you. mr. duke? >> senator, the fundamental framework of debt reduction and fiscal responsibility
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certainly makes sense, and the comprehensive corporate tax reform we think is important. we do believe that all of this should be looked at on a long-term perspective. i think the earlier members of the discussion today mentioned the uncertainty. that's why our interest is in a long-term comprehensive tax reform plan that we think would be able to lay out what the future would look like for american companies. >> very important. let me just say fundamental tax reform i don't believe can be done in six weeks or six months. i believe fundamental tax reform is such a complicated undertaking, it would take us well into next year. joint taxes just told us they couldn't score fundamental tax reform within six months because they don't have a model to allow them to do that. mr. falk, in terms of the basic structure to get at our deficits an debt, do you favor what the commission
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and the group of six have proposeed? >> yes, it makes sense to me. i echo mr. duke's comments and once again, it has taken us more than a generation to get to this point in time, so there are a lot of things that have to be dealt with to correct our problems and get our fiscal house in order moving forward. >> mr. lang. >> yeah, i would agree with the comments made here about the fiscally responsive approach to addressing the issues we have today. >> i agree with the panelists. there is no question a comprehensive reform will have to be thoughtful and a lot of elements to consider and just emphasize the point about predictability and certainty is a key byproduct of the decision-making process. >> i appreciate that. let me go to a questionen repay treatation because i have asked my staff it to look at what happened in the last repay treation.
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a number of empirical analyses have been looked at about the u.s. growth and jobs and the studies found no evidence that firms used repatriated earnings to significantly increase employment or research in in and development, rather earnings were used to benefit company shareholders are through stock repurchase programs even though this was explicitly prohibited by the measure. the memo goes on to say "researchers also found specifically with regard to employment that a number of firms repatriating funds reduced employment in their domestic operations in the period after they repatriated funds." for instance, tax economist martin sullivan found the top five firms in terms of the dollar amount of repay treation reduced u.s.
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employment in 2005 and 2006. i won't name the companies, but we've got it all laid out here. i just say to you that clearly fundamental tax reform needs to include how we are dealing with worldwide income. in the reagan administration, i served on a commission on taxing inter national corporate earnings. that was one of the most interesting negotiations i was ever part of. it made this negotiation on the debt ceiling look relatively easy. let me just say that the argument that has been made by some that it is going to create jobs here, we did it. it didn't produce jobs here. that's the overwhelming evidence. that doesn't mean we shouldn't do fundamental tax reform, because if we're going to be competitive, we got to get in the game and our tax code was designed at a time when we did not have
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to worry about the competitive position of the united states. we were fully dominant when this tax code was developed. i don't think anybody, if they were going to sit down and devise a tax code for the united states in 2011 or 2012, would come up with anything that looked anything like this one. my time has expired. i thank the panel for their testimony. >> thanks very much for your work on the commission, the gang of six and it is clearly time to overhaul an antiquated tax code. that's clear, but it's not going to be easy. one thing i learned around here, abstractions are easy. sometimes abstractions are cruelty, because it's the specifics that really count. for example, we can talk about lower the rate, broaden the base. the current corporate rate, a 35% federal, how much
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could the rate be lowered if all tax expenditures were eliminated, you don't get very far. unless we stick to the territorial system, if it's territorial. you don't get very far. maybe you get down to 29% approximately, and then the next question is what about interest expense? do you want to eliminate interest expense? if you don't eliminate interest expense, then we make headway.
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theoretically, everybody gives up i know at wal-mart, tax credits are pretty important to your company. and mr. falk, a suspect section 199 is important to your company. to you, mr. lang, clearly, the tax credits are important. are each of you willing to give those up for each of your company so long as everything is given up?
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then, we get to a question we have not touched on, namely, if canada is giving such a great incentive to r&d, and if we give up r&d tax credits, will a lower rate make the united states semiconductor company sufficiently competitive so they can deal with or offset the canadian incentive? i would like you all to kind of tell me the degree to which you are willing to give up some of the provisions that you currently use significantly. >> mr. chairman, with -- firstly, the overall lower corporate tax rate that will be competitive in the corporate marketplace, such as in the mid- 1920's, we would be willing to look at every aspect of those incentives that we participate in. we believe that all should be on the table for discussion. >> you are basically saying you are willing to give it all up as long as your headline rate is
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mid-20's or something like that? >> yes, sir. if we are competitive with other markets we are competing against -- >> mr. fall. >> i give the same answer i mentioned in my comments. we take advantage of these credits. we spend about $500 billion in capital each year. as the rate drops -- >> just talking about the federal right now. i cannot get into state and local. >> those incentives are a lot less valuable. >> in the semiconductor industry association working group, we have had this exact conversation. i would agree that everything should be on the table. we should look at it as a whole package and looked at with the end result is. there were a number of things from manufacturing incentives to acceleration, depreciation, etc. that at the right rates would be worth, you know put, putting
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aside. i think, agree with other folks at the panel, we should look at everything. it at the end of the day the overall system needs to be competitive and allow us to compete in the marketplace. >> we are clearly going to look at everything, but after we look, we have to make some decisions. can i ask for some guidance here? >> i think the primary competitors will be in asia, and the effective rates, the statutory rates are 15% to 17%, often lower than that on an effective basis. so concerned that when we look at the details and go through the details, in mid-20% rate will not be competitive for the semiconductor industry. >> you are afraid that that cannot compete in asia?
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>> that is my belief. >> i agree with everything that has already been said. i think everything should be on the table. i think that will be impaired of in terms of simplifying the tax cut as well. that my time is expired. senator hatch. >> thank you, mr. chairman. it is nice to talk about everything being on the table, but there are certain things that do make it competitive with the rest of the world, without which, and without any guarantee that the corporate rates are going to stay down. so we've got to consider all of this and consider how this works in the future as well, but let me just ask this question for the entire panel. considering corporate tax reform, the focus is typically on the corporate tax provisions in our code, but how important is it to focus on the impact corporate tax reform will have on the company's financial statement? for instance, if a corporation has a net operating loss, and it carries forward from year to year, it can offset taxable income in future years.
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thus, it can be a very valuable asset to your companies. it can reduce taxes in future years, so if a corporation has a has100nol, -- has a $100 nol, it will reduce, by our current tax rate, $100. however, if the corporate rate were reduced to 25%, then this asset will only be worth $25. that is in some real sense, the corporation would lose $10 by virtue of the corporate tax rate going down 10 percentage points. this reduction would immediately show up as a $10 reduction in the corporation's net income and lower earnings per share. i am very supportive of a corporate tax cut, there is no question about that. i would hope the effort to
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reduce the corporate tax rate would not be slowed down by these financial accounting considerations. however, i can understand those are real concerns that you have to be concerned with. the r&d tax credit is absolutely critical. as you point out, 13 times, we have failed to re-up it. i would like to make it permanent because i think it would give you a competitive advantage in the rest of the world because of the inventiveness and creativity of the american society and workers, especially in your industry. i would like you to share with me your thoughts on these, how you handle these accounting matters -- matters. should corporate accounting measures taken to consideration the impact of financial accounting reform. >> senator, first, i think in
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the whole discussion of lowering the overall rate, say, from 35% to 25%, as we discussed, even related to incentives and credits, we recognize there have to be trade-offs for the formula to work. we believe that the same would apply to your question about the nol. it is worth it to have a permanent, long-term corporate tax comprehensive revision that would have a competitive rate in the global marketplace, and that transition, related to the questions about nol as well as credits, we think would be worth the challenge. >> my comment, senator, would be i would say to the right thing for the country, and the accountants will figure it out. i would not worry about the financial accounting implications of this. i would say far more companies have a net deferred tax liability from taking advantage of things like accelerated
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depreciation. i think as those reverse, they will enjoy an economic benefit from this change. i would not let the accounting get in a way of making the right decision for the united states of america. >> we are one of those companies balance nol's on our sheet, and i agree with the statements here, that we should do the right thing to make america competitive and do the right thing for the long-term structure of the business and let the accountants figure out how the financial accounting is impacted. >> senator, i am certainly not an accountant. i agree with my colleagues in terms of let the finance folks figure it out, and we will have our staff get back with your staff on any further comments on that. >> that would be great. there are a lot of complexities in trying to change the tax code. but it is not too complex to realize that we have to be competitive with the g-8 and g- 20, and i would like to be more competitive. i believe if we did that, you
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folks would create more jobs, create more opportunities, create more products to sell. i just have seen you all these years. you are just terrific, what you do. there are always a lot of trade- offs in this type of issues. we will just have to see what we can do, but this has been a particularly very valuable panel, as far as i'm concerned, and i want to thank you all for being here. >> thank you. >> mr. chairman, i had one other question. >> ok, go ahead. uke, i was struck by your point with your respective have an ultimate tax rate in the mid-20's, and, to me, that is very much in the ballpark for tax reform. i have tried to work with the chairman and my colleagues on this for a lot of years.
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let me walk you through how i'm looking at the math, and we would like to work with all your folks on this. because deferral is so much money -- like 500 billion over 10, you get rid of that, and it is such a large amount, and you use that to cut rates dramatically in the united states, and i am absolutely convinced he could get in the mid-20's. you also have the benefit of lesson gaming and a more straightforward system. my concern about going to a territorial system -- and i have put myself to sleep at night trying to understand all the aspects of territorial -- is that you will keep a lot of the complexity in the system. you will have lots of gaming, and really permanently, the
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question of transfer pricing where somebody generates a sale 1 plays, books the profit somewhere else, but especially, you will have more business overseas, rather than what the chairman start us off with in terms of more incentives for jobs in the united states. i personally think it will be pretty hard to get the rate in the mid-20's if you go to that kind of system. i was not able to figure it out, and a lot of other people a lot smarter than me -- is it fair to say at the end of the day that you all are willing to work through a lot of these concepts so we can get to the point we started with so we have more american jobs and a greater level of competitiveness in these tough global markets, and you all are still open on the
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design of some of these components? >> yes, sir, we are clearly open for the discussion and development of these. i would say even though we talked some about our growth outside the united states, this year, more than half of our capital investment is being invested here in the united states. we will invest somewhere between $12.5 billion and $13.5 billion, and over half of it here. we announced recently our desire to build more stores and grow in our markets in the united states where jobs are needed and where product is needed. so we clearly are here wanting to grow in the u.s., but we also have opportunity to grow, and really help americans by growing outside the united states, and we'd love to work with you and discuss in more detail. >> i'm going to give you all a question for the record in writing about tax policy and its effect on exports as well because this is another
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opportunity for growing more jobs, and the chairman has been very patient this morning, and i thank him. >> thank you, senator. we do not have much time. question occurs to me -- what about turning this around? i would change the code to get more foreign investment in the u.s. in addition to more investment -- more domestic investment in the u.s., which has basically been the subject of this hearing. opening pandora's box here. >> the same answer. lower the marginal rate for activity in the u.s. on a territorial airspace system, you make the u.s. more attractive for companies all over the world. >> simplicity, predictability. those are all keys we have been talking about all morning. >> how much do we make ourselves less competitive because we have a system that is so complex?
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and it is my understanding that our system is more complex than that of other countries. does that put america at a competitive advantage? >> certainly, a simpler system would attract business to want to invest here and grow. >> thank you very much. this has been a very helpful hearing. thank you very much. the goal is to get us to a much more competitive system. thank you very much. meeting is adjourned. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2011]
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>> the u.s. house is scheduled to double in at 1:00 p.m. eastern today for a pro forma session. today, the majority leader advise members to stay close for a possible session. if a deal is reached out on debt and deficit reduction legislation. meanwhile, the associated press reports this morning that the senate republican leader and a top white house officials are saying a deal is near on a deficit reduction package that would raise the nation's debt ceiling and avoid a government default. the senior white house advisor told "meet the press" that both sides are generally in agreement on a package that would cut the deficit in two stages, though key details are still being worked out. minority leader mcconnell told cnn that he is hopeful he will soon have a deal that he can recommend to his fellow republicans.
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the senate doubled in at noon and is expected to take a procedural vote on the option offered by majority leader harry reid at 1:00 p.m. you can see the senate live on c-span2. c-span's series of interviews with the 2012 republican presidential candidates continues now with michigan congressman thaddeus mccotter. he will outline his strategy for winning the gop nomination and discuss his primary opponents. he talks about the debt and deficit reduction debate in congress. also talks about his family and the band in which he plays the guitar. this is 30 minutes. >> when did you first begin to think about running for president? >> i think the thought was planted during the wall street bailout when we saw how the big financial corporations were treated and later how the auto companies were treated when they
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needed assistance, the dichotomy between the financial sector and the manufacturing sector. obviously have concern for the manufacturing sector, but as an american, it was a larger question to me, if there are some things in the country too big to fail such as the banks, that implies that there are some things that are too small to be saved. we know that every citizen is equally sovereign asset have an equal say in how these things are decided. as time went on, we continue to see the billions of markets to respond, the bill your credit to flow down to main street. we continue to see people suffering. interestingly, i think that amidst the jeopardy we face, we had a tremendous opportunity to seize the future and make sure the 21st century remains an american century, but in the final analysis, if we allow ourselves to continue to rely on big government, which is contrary to what we see in every other aspect of our lives, we will miss this opportunity. >> when it comes to bailouts, recall -- republicans claim that
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as government voters, to help the auto industry in your own state, something that mitt romney said he would not have done. do you oppose your fellow republicans on this? >> i did. economically, as moody's has pointed out, it was a $300 billion hit to the social safety net that would not have been available as loans that will allow the manufacturing base to go down. so i would also point out that strategically that i have a problem with the communist dictatorship in in china being a manufacturing giant of the 21st century. nothing good will come to us from the for our prosperity and security your in terms of mr. romney, i absolutely oppose allowing people to go bankrupt in the manufacture and sector. as a nation, we have to produce well, farm, manufacture, in a big. there's also the underlying premise that having seen wall street bailed out with no restructuring, with a failure to actually get the credit flowing
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back down, to turn around and say to working people that live in 90-foot loss that there tax dollars are being used to bail of people in 90-foot loss is unacceptable. >> yet, it was a republican president that said that the u.s. was on the cusp of financial disaster if wall street was not build up, if some of these too big to fail companies were not helped out. >> i disagree with president bush in the past. i respect him very much. i think history will be kinder to him that some of the recent evaluations of his performance have been, but that is where you have options on the table. if you did not want to throw $700 billion at them and hope they went away, that somehow you were not advocating any type of policy. you had a former chief economist of the imf talking about debt for equity swaps. the talk about finding the ones
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that were insolvent, greg lamotte, forming a resolution trust corp., much like was used in the savings and loan crisis, and the reason this was so important, and in the 1990's, when the japanese faced a similar financial meltdown, the u.s. ad buys them to do exactly what we did not. they ignore our advice and one of having a lost generation. we are now in the prospect of -- facing the prospect of having a lost generation. it was one of reasons i found the entire debate so reprehensible. we knew it would not work because it had already been tried and failed in japan. >> what are your views about organized labor, and how do you differ with fellow republicans on things like the card check? >> i view it as more of a district but then a national vote. i think it was a mistake and should be handled more at the district level. to me, it is an artificial distinction if you want to get the economy going. as republicans, what we have seen, at least in my lifetime,
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is i saw former labor leaders believe what i considered to be one of the greatest presidents of our lifetime, ronald reagan. it tends to lead towards a broader based coalition for moving the country forward for economic prosperity and security. i think if you look at it that way, it makes perfect sense. if you try to win elections by disqualifying yourself from a large section of the electorate, especially in swing states, what you will find is the reason that the republican party since 1988 has only 11 popular vote for the presidency, and that was in 2004 -- as you recall, to thousand was a contested election where we lost the popular vote but one in electoral college, i think republicans have to look at how we have a ball since ronald reagan has left, since george bush the father was elected, and how we can rebuild that coalition. >> the head of the michigan afl- cio said that for a republican,
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you are pretty good on labor. why is this a defining issue between -- dividing issue between democrats and republicans, and how will the issue played out in a gop presidential primary? >> for a democrat, i think he is okay, too. high praise indeed. but that is a very relevant statement. there are places i did not look at whether you are in the union or not. i look at whether the situation you are advocating has merit in terms of how it will affect the rest of the community or country. to me, it is an artificial distinction to a large degree. i think that is one of the things that republicans have got away from pure ronald reagan treated everybody as if they were equal because they were. the republican party has to get back to that. my father was a reagan democrat, union member, voted for him. people in our community as i was growing up supported the republican party because they had a host of issue on which they agreed with this, but if we start to tell people that because they are in one organization or another that they're no longer wanted, they will vote the other way, and you will not get to the issues on
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which they can and have in the past but republican pierre >> which leads to the debate we have seen over the debt limit and budget priorities. and the issue of compromise. why is it so hard for two parties to sit down and compromise on some of these issues? >> i would not use the phrase that it is an inability to compromise at this point. i think the public thinks the in ability of democrats who could not pass a budget who refuse to compromise on things such as obamacare or the trillion-dollar stimulus with a jammed through not only the republican party but the majority of the electorate. when they had control, they spent like it was going out of style. so their refusal to compromise and cooperate to try to find more constructive solutions for the nation's problems at that time have carried over. now that they do not have a majority in the house, what we are seeing out of democrats out of the senate and the white house now is a posture, not a plan. i continue to point out a bipartisan plan that was passed out of the house was a concrete plan.
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we were told what they did not like. they voted it down in the senate. fine. where was the senate plan? we have only recently since speaker banner and the house republicans are coming up with a second plant, are we seeing any type of plan, as flawed as it may become come out of the senate. we still continue to see no definitive presidential plan either directly advocated by him or through the senate. i think it is not just a failure to compromise, but it is a failure of government and failure to except the responsibility of what they have done legislatively to the country and the whole is in. we know republicans were not great on this when the republicans have the majority of the presidency, but those were times when the republican party was running up an annual deficit of $96 billion. this white house and the democratic congress have run up a monthly deficit of $111 billion. a monthly deficit. >> let me talk that point. democrats pointed to republicans when they had control of the white house and the house. republicans for democrats.
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it goes to the core issue, getting young the finger- pointing and getting something done. >> as to the finger-pointing, when it comes, as it did recently, on the president's national televised debate with you relied on certain issues of the past, republicans learned through a very painful time where we have rightfully been put in the minority for our failure to control spending. we self assess ourselves. we were assessed by the public. many of our colleagues did not return, and we learned from that painful experience that spending in the way we did was unacceptable as such to the republican party, so we learned our lesson. democrat party has not here they talk more taxes, more spending, and pretend somehow that the government will help grow the economy or lead to prosperity would exactly the opposite is the case. to me, you have one party that has learned from being put into a minority for failing to control spending and another that has not in terms of the senate and in terms of the white house. >> define your brand of politics. what is your ideology?
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>> i am a republican. i join the party in 1986. friend of my asked me to run for delicate, and that is how it started. one of the things you realize is the beauty of the republican party is the variety of views that come together, the shared principles remain the same period to focus on the principles. except a variety of opinions and differences that can lead to more constructive solutions than a single model marching forward. i always like that. other people get the right to call me whenever they want. sometimes it is less than flattering. >> there is moderation, conservatives, liberals, progressive spirit you would not give yourself any other label? >> i am republican. i belong to the party of lincoln and reagan. my mother was a moderate republican. my father was a truman democrat. in view of the political experiences i remember politically growing up was when my father admitted voting republican to my mother.
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nixon in 1972 and reagan in 1980. >> why did you get involved in politics and what led to you registering as a republican and seeking office in 1986? >> i was a local elected official, and i did not particularly care for appeared my father never cared for politics. there were times he was asked to run for detroit city council way back in the day, and he declined to do that. he found it to be a less than productive pursued. the reason i got involved was because i saw it did not work under jimmy carter. it did work under reagan. i also got involved because a friend said to me i should join the republican party, the briefing delegates. at a time when michigan was going through a caucus ship, tried to make the determination between george h. walker bush, jack kemp, and robertson supporters, so my friend was a jack kemp supporter, and he got the ball in the party appeared much to his chagrin, i wound up
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being a bush supporter. >> in the 1990's, you wound of the and in local politics. when did you decide to run for politics? >> that was much later. that was in 2002, post-september 11 because as a state senator, you cannot affect national policy, and clearly this was a threat to the nation. it was a significant proportion to anything we have seen in the past, except for pearl harbor. to me, it was a place you could make a difference in terms of the national security of united states and protecting your community and moving it forward. in michigan, we also had some of the economic challenges that still confront us to this day. this was the place where you could make a difference. >> why are so many members of the house running for president and not one sitting u.s. senator? >> there are three of us. he would have to ask the senate. i do not know. usually, it is the senate that one's of doing it, so i'm not sure. but you have had governess declined to run as well.
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in many ways, it shows a healthy respect of the political ability of the president. no one is under any illusions that he is a very spirited campaigner and has been very successful and has had a very rapid ascent to the oval office. i think a lot of republicans are looking at this in terms of it would be a very difficult race, and many have also declined on the basis of their family, which is very understandable. to me, it is their decision to make. >> yet, this country has not elected a sitting u.s. house member to the presidency since james garfield. >> yes, and of trifecta. he was a member of the house, also the nominee of the legislature of ohio. have been elected by the legislature of ohio to be their senator. he was leaving the house to be a senator. he was the dark horse. ,o what we're seeing today especially in the communication revolution, is you are generally down by the district in which you are covered by the local press, and which the media may
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be under smaller markets, and you find yourself -- you have youtube, twitter, facebook, c- span -- you have the ability to take your message out said the boundaries of your district to a greater extent than ever before. this is why senators, house members, even if they decide not to run, certainly have voices being heard across the country far more than ever in the past. >> do you feel yourself qualified to be president? >> i think you always feel qualified when you see the office, but you have to be very realistic that it is a very challenging job. i do not think there has ever been an occupant of the white house this is they were fully prepared for what happens here not always the day-to-day administration, but you never know what to expect. the last president bush was going to be a domestic reformer, and then september 11 have been. you can look throughout history, and president's face difficult challenges. a lot of them are extenuating circumstances outside their control or even outside reasonable expectation, and you
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have to be cognizant of that when you go in. there is a certain amount of humility that has to be brought in the door so you do not think you could know everything and that somehow you can foresee every eventuality that can happen. >> why do you want to be president? >> it is a tremendous opportunity. what we're seeing in everyone's daily lives, especially to the communications revolution i talked about, if you think about a blackberry in the home of your hand, you can communicate around the world. or your laptop -- you can seek sources of information. you are no longer bound by major networks and major newspapers. you can have more control over your own life and more ability to project your political views or personal views to your family, friends, and community than any time in your personal history. this is called self-government. and yet, what we see is the antiquated 20th century model of the government. the state which wants to take more of your money and more of your decision making ability. lsu match our consumer-driven self as governing economy with a citizen estrin self-governing
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state, what is going to happen is you will continue to see america in stagnation. combine the fact that the government, which spends what it takes as opposed to what makes, with the fact available street banks are still sitting there and not getting credit because they have not been restructured to the point where their balance sheets are fixed, you will continue to see a lost generation of economic prosperity for america. i think he could fix the big government, fix the big banks, and then what you have to do is ask for regulatory reform. you will unleash the entrepreneurial industriousness of the american people. if you do not, we will continue to be dragged down by entities that are antiquated on the 20th century model that can be applied successfully in the 21st century. i think that is one of the things. other thing is, obviously, we are a country at war. we have men and women defending our freedom and expanding it to others in foreign fields.
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the ads this has to have a comprehensive strategy not only for dealing the conflict in which we find ourselves but supporting freeway -- freedom movements in places like iran or the opponents of the regime in syria so that this terror- sponsoring states can peacefully implode like the soviet union did because of the people's aspirations for freedom. i continue to think and continue to point out as people are increasingly starting to realize, that the people's republic of, is a reliable model of governance and a threat to american prosperity and security because it is a mercantilist state bound up on expanding its influence not only in asia but throughout the world at the expense of united states. these are major issues coming down the pike that we hear very little about in this type of presidential primary, and i think it is something that the voters, when you bring it to them, are very attuned to because it is something happening that everybody knows is happening, but very few people are talking about. >> let me talk on that point. eat you use your words -- economic stagflation or stagnation, but the anemic
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economy under two administrations, two different parties -- what would you do that has not been done under the bush administration would cut taxes, and we saw unemployment continued rise, and under the obama administration, which has spent money, and yet, as republicans have said, we have not seen the economic growth the president promised. what would you do differently? >> first, you cannot focus on leaving the banks the way they are. what is happening is it is not investment and consumption necessarily. we continue to see this go up and go down. we have to see is the failure business to get down to small businesses. the longer they are recapitalizing, as you recall after the wall street bailout, instead of buying toxic assets, they would write to a recapitalization program, the logger stay with the leisurely recapitalizing, it will continue to keep credit from coming down here this affects farmers, and manufacturers to get their capital-intensive labor- intensive -- they have to produce up front before they get their accounts receivables. that is one of the major things
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that have to happen. you have to quickly get recapitalization. you have to limit the amount of leverage so they never collapse again, and you have to take the ones that are not healthy and segment them off, break them up, and wall off their assets. it is one of the things that neither party even since bill clinton has done because they believe the financial markets will lead to prosperity for everybody, and they should be as unfettered as possible. what we saw instead was a dot- com followed by a housing barbel and i would argue the government bubble -- bubbled followed by a housing bubble and i would argue the government appeared it makes sense for business is not only to stay here but to expand in the united states. once you can fix the credit issue, what you have to do is go towards a lower, flatter tax on corporations. you have to reduce marginal income for individuals to be incentivize work and investment and get them going. i think what you also have to do with the bush administration as well as the obama administration have not done is look at true
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regulatory reform. the bush administration raised the standards with a democratic congress, and i oppose this because it would make it harder to manufacture. you then saw, unfortunately, the obama administration coming to pass cap and trade that are now being tested to be implemented through the epa. you cannot have the government coming down trying to impose these regulations on people and expect the economy to grow. those are things right off the back that you have to have fundamentally. you also have to get beyond what we're seeing now and allow for an all the above energy strategy in the united states. we are watching core inflation rise at a time that real wages are declining. energy is something that goes into the cost of every product you have. we talked about growth going of 5%, despite they have not seen before that high. energy goes into every single thing you purchase. every single thing you produce. especially with manufacturers and farmers, those fixed costs cannot be passed on to consumers. it makes it more difficult for them to hire, grow, and invest,
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and it makes it more difficult for consumers to wind up being able to purchase the goods in a recessed economy. these are things that were not done and were not approached. again, you have to understand, the president only can grow government jobs. what you have to do is to unleash the american people, and they will respond. there is a lot of contempt entrepreneurship and industriousness -- a lot of pent up on jupiter ship and industriousness. i think you can but republicans and democrats on both sides the understand the economy has to grow. there are blue dogs. there are centrists theory that will depend on the outcome of the election. if you continue with a divided government the way it is constituted now, you will see that and in 2012. you may have a divided government after that, but i think the american government really understands that they will vote for whoever regardless of party that gets the fact that they are being bailed on larger institutions on this country. people who understand the sense of alienation of individuals
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feel, both republicans and democrats, the way that these are -- they're the service institutions, the government which is supposed to work for you, are not serving you. we get a sense they are working together to serve themselves. am aware in michigan did you go up? what was life like for you and your family? >> live just upside detroit when i was 7. a detroit background. >> brothers, sisters? >> i have one brother a year younger than me, and according to him, immensely more talented. >> you have seen a lot of changes in detroit over the last 30 or 40 years. how is your home town changed in your eyes? >> my home town is always my home town. whatever the changes are, the things we focus on our the fact that we're very resilient people here wanted things people in detroit do not like is the way that the rest of the country looks at us as if we're some kind of sort to be ignored. the reality is where the people who get up every day of work very hard pill we make things. despite the difficulties we
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face everyday, we get up, go to work here drive has houses that cannot be sold pirie drive past shops that have closed, newspapers that tell us how bad off we are, and try to make things better. we will continue to try to do that. one of the goals of the people in detroit is to continue prove the doubters wrong, and we will do that. >> how did you do that in detroit, ohio, pennsylvania, new york, illinois, the whole flock of area that has seen plants shut down, home values drop? >> again, one of the state's talked about, very much mirror what has happened with the government we have in washington, so what we have people like governor schneider, and others working at the state level to try to restructure government, make it more nimble, more accountable, more limited, and allow for self-government in the states to meet the more attractive for business, on the lid to bring in new start-ups, but to allow us to keep the college kids that we educate that are still leaving us now for other states, so the
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laboratories of democracy are getting the concept that they cannot continue as if this is 1965, the year of my birth, the things have changed since then, except government has not pirie these are the places that are going to do it, and what is going to change these places is the ability to diversify the economy once you fix some of the fundamentals we have talked about so that on to produce and innovators and workers can come together to grow those economies and find new jobs -- entrepreneurs and innovators and workers can come together to grow those economies and find new jobs. these are things that right now we are not seeing. what we are seeing is the continuation of a consumptive economy. we keep talking about i was born in detroit. when i was in high school we were told we would have seven jobs and a service sector economy. in college, we were told we would have a knowledge-based economy. then, mr. greenspan told us we did not need to make things any more, but eventually, something is going to take its place your
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the only people who will determine what the future of this data states looks like is not the president who is claiming he is creating the pillars of prosperity, which you did not see in his job description, by the way. it will be the american people in the past and in the future will continue to build and shape what has been the most successful, prosperous, and equitable economy known in human history. >> you mentioned ronald reagan. who else do you view as a political hero? >> i do not view politicians as heroes or role models. i view them as people. you look at people and admires certain aspects, and the best thing is that they are human. they have had their struggles. forget about some of the things ronald reagan had to go through. you can still like people for what they go through. but if you are talking about people you really try to emulate, musically, i like to listen to the beatles and the stones, so i would probably be more excited meeting keith richards that i would be meeting president obama again. >> you often " led zeppelin -- quote led zeppelin on the house
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floor. >> i could quote shelley or words with, as well, but i do not that as many people would be as it to that. i tried to work in some song titles into the speech. >> how often do you play the guitar? >> i play all the time. >> when did you start? >> when i was 11. when you are home schooled, you have to do something. >> what is the name of the band? the new flying squirrels? >> ecb the flying squirrels, until we found out there was rocky and the flying squirrels. we went through several permutations. >> losses in the band? and it was always me and my brother, and our drummer was john, and he passed away unfortunately, from a congenital heart ailment, so we have had a friend of ours from the old days came back and started drumming for us. and people who sit in.
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>> have you ever written a song? >> yes. none of them are any good. or i would not be doing this. >> how did you meet your wife? >> i met her through her brother. he was a high-school classmate of mine. >> children, how many do you have? >> we have three. george, timothy, and a million -- amelia. >> what did they think about your presidential bid? >> they think it is all right. they have other things to focus on the dead. have to consider what will happen and the eventuality that it did not get it. you have to devote yourself to no distractions. >> how do you do this? how do you win the nomination? >> the strategy is we are treating the first debate and straw poll as an introduction. that is the message that seems to resonate as we go around, getting the message out where we can. we are not as well-known as the vast majority of the candidates, but we do take great heart that the response is been very warm
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to the message because it is something most people are not talking about the challenges they talked about earlier, so you go forward and see if it works. i believe support will follow. we have seen far too many candidates spending millions upon millions of dollars that cannot get out a single digits or cannot break out of the 17% range even as a front runner. what the polling tells us is that people are dissatisfied with the field and looking to hear something different -- not necessarily see someone different, but to hear something different. it might be me. may be somebody else. >> what is your pitch to the voters in iowa and the american people? >> to make sure we get the american government going again. oure going to transcend security challenges. the best days are ahead. it is a matter of how quickly we get there. >> the president is also the leader of the world stage. are you prepared to do that? >> yes, if you look at it in terms of foreign affairs of the united states, what has to happen is the united states has
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to be respected here this administration is chosen to be liked rather than respected, and they wound up either. >> what about specific issues? the war in iraq rather than -- the war in iraq and the war in afghanistan? >> we will continue to help govern so they have a legitimate chance to continue hold on to their liberty. you have to look at in afghanistan is we have to watch out for a precipitous withdrawal, which would allow the taliban to come back and continue to create a new harbor for terrorism and to use their ability to destabilize the government of pakistan. >> have you met world leaders? what is your impression of them? >> i have that world leaders, and i do not worry about what i think of them. i do not believe that that is what is important. i look at the strategic interests of the united states and our allies and how this nation can either mutually cooperate or mutually conflict. >> finish the sentence -- "the state of the country today is what?"
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>> an opportunity waiting to be seized. >> why has it not been seized? because a lot of institutions such as the government and big banks have failed us, and i think the crushing weight of the government and the crushing weight of the failure of the financial markets have had -- have helped to inhibit the american people to move forward. it is not the american people. that is not what we are in a stagnating economy. it is the failure of governments to affect larger institutions. again, for a time, when you hear that something is too big to fail, they already have, and they continue to fail the people of the united states and continue to drag down the ability of the american people to move forward. as we have learned in other times in the country where we have had other such situations, if a change to actual leadership, a change to make difficult decisions, a change to bring government and the 21st century, a realization of what has happened on wall street has failed that allows the american people to fix those problems and
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move forward. as a conservative, as a republican, it is a tremendous time from this perspective. everything in the world is moving toward in powering you to make more and more of your own decisions. it is known as self-government. it is the basis of the free republic. the basis of solidary organizations. these are the things that are happening again, and i think the only concern people have is how long it will take for the changes in large institutions that have failed to allow the real strength of the american people, namely them, to move us forward. >> if you go through this process, did you learn anything about yourself? as you begin this month for president? >> i think you can do that after your down one way or the other. more time you spend worrying about yourself as the problem in this town. a lot of people are worried about themselves. >> not worried. did you learn anything about yourself, the country, the process? them as you learn about other people, you learn about the country. you learn about everybody you run into.
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you learn about what is happening and touching it affecting real people. that is part of the beauty of the american experience, interacting with other people. >> yet, you still have to raise money to run for president? >> yes, you still have to do that, but as we have seen, money without message gets you nowhere. a message and small amount of money may get you somewhere. >> representative thaddeus mccotter from michigan, thank you very much for being with us. >> thank you for having me. >> today on capitol hill, the u.s. house is scheduled to dabble in at 1:00 eastern for a pro forma session. today, the majority leader advise members to stay close for a possible session if a deal is reached on the debt and deficit reduction legislation. meanwhile, the associated press reports that senate republican leaders and a top white house officials are saying a deal is near on the deficit reduction package. it would raise the nation's debt ceiling and avoid a government default. senior white house adviser said
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on nbc's meet the press this morning that both sides are generally in agreement on a package that would cut the deficit in two stages, although some of the key details are still being worked out. and senate minority leader mitch mcconnell said on cnn that he is hopeful he will soon have a deal that he can recommend to his fellow republicans. the senate gaveled in at noon and is expected to take a procedural vote on the measure offered by majority leader harry reid at 1:00. you can see the senate live on our companion network, c-span2. before the house gavels in at 1:00, here are some of your calls from this morning's "washington journal." to the basis of what the associated press is reporting on the s -- the fundamentals of this deal. here are the highlights.
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let's look at some of the headlines out of washington, beginning with 8 "los angeles times." the headline from the "atlanta journal-constitution." and from the sun. "globe." more details from the "new york times."
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republicans have changed the terms of the national debate. also, ring on the debt negotiatns, new talks made progress late saturday. sudden optimism -- here is how the story began to unfold yesterday with a commons, beginning with harry reid and that democratic leaders in the u.s. senate. >> many elements to be finalized. they're still a distance to go before any arrangement can be completed. but we should give eryone as much possible -- as much room as possible to do their work.
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we need as much time as possible to reach an agreement if one can be reached. we will hold over the vote until tomorrow and then to give them more time to talk. in fact, we will come in at noon and have the vote at 1:00. i am glad to see this move toward cooperation and comprose. i hope thabears fruit. i am confident that the final agreement for a long-term approach will move forward. there can be no short-term agreement and i am optimistic that there will be no short- term arrangement whatsoever. i am also confident they're reasonable people from both parties should be able to reach an agreement and i believe we should give them time to do so. st: if you're expecting to see that vote at 1:00 in the morning today, as you heard from harry reid, it was postponed. this headline from the "washington post."
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a reporter joining us on the funds from the open but congressional -- the "congressional quarterly." how close are all parties? guest: we began getting reports that senate leaders were closing in on a tentative deal. basically, as harry reid alluded to come it appears that republicans are relentingn their demand for short-term debt limit increase. the white house sounds like they will be able to extend the debt limit through 2012, one of the key demands that the president has been pushing. at the same time, it looks like democrats are willing to give on a guantee of long-term spending cuts. that is one of the things that republicans are looking for. a guarantee that some of the deficit reductions will happen long term.
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one trillion dollars up front and then i congressional committee, a new congressional committee will be formed to recommend further spending cuts, $1.8 trillion more. if congress did not enact them, some sort of automatic trigger would be set up so that there would be automatic budget cuts to ensure that the deficit did come down. how that trigger might work, those details are up in the air. it appears that the framework of the deal is now in sight. host: so many different moving parts and so many players, but it seems as if late yesterday the new key player in this was senator mitch mcconnell. who did he talk to and at changed late yesterday? guest: true out last week, speaker boehner and the house had been pushing his two-stage debt limit increase. senator mcconnell had been backing down, saying that he
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would back the boehner bill. he would wait until that bill was for the system. the house passed boehner pass bill on friday, and the senate quickly move to table it. yesterday the house actually defeated a version of senator reid's alternative bill. partisan back and forth, and finally mcconnell engaged with the white house and said he was an intense talks with joe biden and president obama. a few hours later, the outlines of the deal started coming into view. mcconnell has been that y in this over the last several days. he actually proposed tobacco plant that was designed before the fall. he has been a key player in all this. host: people in home are wondering why they could not have reached this agreement on a weaker to ago.
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whenever it comes to these kinds of agreements, it is always the 11th-hour. guest: congress does not work well about a town line. there is an enormous amount of posturing on this one. it did feel like last night that the outline of the deal were probably in place for a few days, at least, but both sides really felt they needed to go up to the end in showing that there respective supporters that they had really gone to the mat for them. republicans, particularly in the house, john boehner needed to show his conservatives he had gone as far as he couldo to get a good deal, to get as many spending cuts as possible, and mcconnell wanted to show the same tng. likewise on the democratic side. even yesterday morning in the senate, things looked grim publicly at least. both sides were in french.
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a few hours later, look like a deal was breaking through. both sides were trying to show that they were going to the end on it. whether that pays off with people and the public, it seems to be the subject with congress right now when you look at the opinion polls. it remains to be seen. host: walk us through the next couple of hours. we know that the senate is in at noon with a bloated 1:00 the house of representatives in a pro forma session today. what are you looking for? guest: there had been no one -- 1:00 a.m. both scheduled, and now what is at 1:00 p.m.. then it can be sent over to the house. everything remains in flux right now. it could potentially pass today or early tomorrow and be sent to
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the house. then the question is, what enough republica and democrats supported in the house to get to the president's desk by the end of tuesday, the deadline? august 2nd is the potential to fall scenario. host: thank you for being with us. again from that of "ashington post," scrambled for a deal. and belothat, that piece by paul kaine. after all the partisan bills were dismissed, the senate leader -- the senate minority leader took charge of the process. the headline from the "national journal." the vote will take place at 1:00 this afternoon. at live coverage on the c-span network spirit we will go to lynn that joining us from ohio
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on the democrats' line. caller: i think this could have been reached a long time. i think this is all political. they want things to fail. teabaggers, whatever they are, they are treasonous. mcconnell is a liar. he wanted to draw obama in. heays that he was sitting on the sidelines. no, obama was there, do you remember that? they threw him out. they did not want him there. obama cannot put bills into the republicans' hands. that is the house of representatives. the insane right will believe him and then blame obama.
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no one had even close to a deal yesterday. you can alws fill republicans because they are an intelligent. they banged on their stupidi and they will turn around and vote. >> we are going to lead this conversation. we will take you live to before of the house for a pro forma session live on c-span. may they and may we all be concerned not only with our personal interest but with the needs of those who live each
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day without power, relying on the goodness and generosity of we who have been given so much. as always, may all that is done be for your greater honor and glory, amen. the speaker: the chair has examined the journal of the last day's proceedings. pursuant to clause 1 of rule 1, the journal stands approved. the gentleman from wisconsin, mr. sensenbrenner, will lead us in the pledge of allegiance. i pledge allegiance to the flag of the united states of america and to the republic for which it stands, one nation under god, indivisible, with liberty and justice for all. pursuant to clause 12-a of rule 1, the house will stand in recess subject to the call of the chair.
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happens if the u.s. default. the impact on consumers on "washington journal."
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this runs about 45 minutes. " joins us now. thank you for joining us. we should point out that from what we have been hearing from the speaker of the house and from senator mitch mcconnell that there will be some sort of an agreement to raise the debt limit by tuesday, but if that does not happen, what impact would that have on u.s. consumers? guest: it could have all sorts of effects. everything from making it harder to buy a house to making it harder to make car payments, to maybe actually boosting their retirement savings if they are in savings accounts or in treasuries, for that matter. there is a huge range of effects that could come because either the united states defaults on its debt, which is a very unlikely outcome, or even if we get downgraded and investors start charging higher interest rates. host: in one of the many stories you have posted for the "new
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york times," you point out that in 1979, the u.s. and congress was debating raising the debt limit to $830 billion. guest: those were the good old days, right? host: we are now at $14.30 trillion. guest: there have been countless showdowns over the debt limit. to my knowledge, none of them has occurred in an economic situation quite as precarious as this one. that is, a situation where there was 9.3% unemployment, a very lackluster recovery, and as sort of thing, but this is not entirely unprecedented in that respect. in the past, there have been discussions about under what conditions the united states should -- or congress should be raising the debt limit as well as what we are discussing today, what kinds of spending cuts or tax increases, although that seems to be ruled out, should go along with any increase in the debt limit. in the past, there have been concerns about a default, but to
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my knowledge, none of them were quite as crisis-prone as the discussions going on right now. host: what impact does this have on municipalities and states, if any? guest: it could have a serious impact for several reasons. one is that state and local governments depend heavily on federal funds to keep their cash flow going. if there is a problem where the united states has some kind of selective default on its debt, that is its stops paying at least some of its bills, there could be huge interruptions to the payments that go out to the states. the states themselves are already in a very delicate situation in that they are dealing with their own budget crises, and as a result, they are having a lot of problems keeping the funds flowing as it is. on the one hand, you could have problems with interactive
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projects, infrastructure projects, unemployment benefits or whatever, all sorts of things administered by the states but that rely on federal funds. on the other hand, and much more serious consequence, is that should there be some sort of financial crisis that erupts from all of this, that what had a huge impact across the economy. when i say a financial crisis, i mean people start to get worried about whether the united states government is able to pay its debt. as i mentioned before, interest rates will go up because of people do not trust a bar work, they say they're going to make it more expensive to borrow, and there are countless interest rates across the economy through all sorts of different financial markets that are pegged to the cost of borrowing for long-term treasuries. that is what i was getting at before when i was saying that the cost of a mortgage could go up. because of a car loan could go up. student loans. all sorts of things. what happens is if interest rates go up for the federal
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government, that sort of has this reverberating effect where everybody else starts raising interest rates, and that freezes up credit markets. that freezes up the economy, and could have the potentially dire consequence of plunging us back into recession, which, of course, is good for no one. >> our guest is katherine -- catherine rampell, a graduate of princeton university, worked for the "washington post," now works for "new york times." you spend some time in china. >> we owe china a large amount, and they know this, and i think they are getting very concerned about what's going on within the united states and our ability -- as i said, i think it is unlikely that we would actually default on our debt payments. there is a larger likely that, given where things are going, that we might not be able to pay some of our other bills, but i think united states will try to put off a default on interest
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payments to our creditors and basically all costs. that said, even if we continue to pay our interest payments to our creditors like china, if people start to get very worried in the long run about what -- about the dollar, that will cause people to start dumping dollars and making the value of the dollar fall. that hurts us, but it also hurts china because it means all this money they have stalked away in dollars, it is not what was, but it is not nearly as valuable, and they are in the delicate situation of wondering if they should continue to invest in
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u.s. currency, which has lots of nice effects for the united states, or try to put money elsewhere where it is safer? the world so interconnected. global financial markets are so interconnected that whatever we do this week has huge consequences globally. host: there is a story posted on line with the headline -- "need the debt plan protects the nation's aaa credit rating -- neither debt plan." the story points out that neither plan being put forth could provide the credence that they think would be possible among democrats and republicans to keep the aaa rating. there's the point that moody's is confident it will not have to downgrade the nation's reading because of defaults.
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it did make and that the long- term debt and deficit problems will continue to weigh on the aaa mark. guest: right. the main problem facing the united states is our health care commitments. health care costs are spiralling out of control. we also have an aging population. people consume more health-care costs, which is true across the developed world, but it is especially true in the united states, for whatever reason, and you can credit it to multiple different factors. united states spends much more per capita on health care than other countries, even countries with all the populations. so that is a huge concern, right? we have not really done much to try to bend the cost curve, to .se obama's phrasing one of the primary goals, in the
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minds of these credit ratings agencies and presumably other investors that rely on them, is that we should be able to get that trajectory of spending commitments under control. unfortunately, if you look at what congress has been talking about in terms of how to get or how to manage these fiscal austerity measures, they have basically ruled out entitlement reform. they are mostly talking about discretionary spending. to some extent, that means military. to some extent, that means education or infrastructure or whatever else. so i think that to credibly tell the world that we are tackling our fiscal concerns, that would require going -- taking a stab at some of this much more politically sensitive issues. i think that is what s&p, moody's, and fitch are
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expressing concern about. they are saying, "you probably are not going to default. you're talking about some austerity measures, but you are sort of looking at the wrong areas." also, the magnitude of the cuts are at least not what s&p said they were looking for. s&p said they wanted $4 trillion of cuts over the next decade, and needed the boehner plan or the -- neither the boehner plant nor the reid plan addresses that. .
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host: good morning. james is joining us from indiana. caller: the federal government takes in people every day due to new immigration, new retirees on
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social security, disability. their family grows. it grows larger, and their budget grows larger through no fault of their own. now, if the private family was mandated to increase their family by one person every week, they could not maintain their budget without increasing their income. so how can the federal government be expected to maintain a balanced budget when their family is growing three million to four million people every year? host: thank you, james. the debate over practices. guest: when we talk about the united states and what would that mean for a household, we have expectations for consistent
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growth long term, that is something that the united states generally has been able to count on. that's one way in which the country has been able to, essentially, continue borrowing more -- it is actually spending more than it takes in. there is an expectation that the country will grow enough in the future that that will look dwsh hook tax revenues and be able to pay off the money we borrow in the past. the fact we have taken in so many immigrants has been good for our economy for a lot of reasons. not just because many of the immigrants coming into the country, undocumented or otherwise, are working and being productive members of society. and reasonable people can agree with whether they are supposed to be here or not and whether that is good for the economy or
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not, but in terms of the budget crisis they have been good because we have an aging population. a much larger share of native-born americans today are not working than what the case -- than was the case in decades past. so social security, as you probably know, worked by having today's workers essentially pay yesterday's workers to keep them getting a steady income, essentially, a pension. one way the social security has been able to stay stay solvept is because we have this influx of younger imgrents -- immigrants who are paying into security and are picking up the -- into social security and are picking up the slack of this shift where you have a lot more native americans not working. because of the baby boom, the baby that -- babies that
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replaced them is much smaller. in that way, having a lot of immigration has been good for our nation's finances by being able to keep social security solvent. >> your work is available online at new let me ask you about those who have money in the stock market. based on the uncertainty that we have been seeing, what recommendations have you been seeing from financial experts? keep it in? take it out? >> i would say because there is so much uncertainty, not only about what the outcome of these debt talks would be, but what the implications of those outcomes are, and the multiple permutations of what could happen to the economy, it is hard to have a strict and
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reliable financial plan. for example, if interest rates go up, if they go up a little bit, that can actually be good for people who are retired or who are approaching retirement because if they have their money in savings accounts, that means they are getting more in terms of interest on their savings. of of course, fp interest rates go up way too much and that causes another recession, then it is sort of self-defeating and it doesn't help very much. so, again, you know, depending on what your expectation rs for the quenses of a downgrade, default, whatever, and depending what your expectations are for how the markets react, that has a very different implication. host: gene is joining us on the washington democrats line. good morning. caller: good morning. with all this debate and with all this rang ling between the two houses, i've mentioned this
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before, and other people have brought this up, and i don't understand -- i followed this throughout my life. i'm 76. i've watched them and congress even at midnight raise their wages up to as high as 50%. not once have i heard anything about rolling back. they want the people to step up and do their fair share, but i haven't heard anything about them rolling back their wages back to, say, the 1980's, which would create a pothole of money that they could put back into the national debt. >> we'll get a response.
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guest: he's talking about rolling back congressmen's wages. you know, i think this matters more symbolically rather than economically. yes, it is frustrating to see congress giving itself a raise when there has been so much wage stagnation in the united states. for that reason there have been a number of years where congress has decided not to give itself a raise, which has all sorts of other effects which are not quite desirable, for example, judicial salaries are sort of tied to salaries across the federal government or other sort of senior positions. so judges are not getting raises either, and federal judges have been very upset about that. but that said, symbolcally, i think it is important in terms of how much money that would free up. it is not going to solve our budget problems. it's just not. it would be nice to think that
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congress shares in both the successes and failures of the american populous and american workers, and for that matter, maybe there is an argument to be said for tying their wages in some respect or their pennings to the state of the economy. but that seems very unlikely. and in any case, like i said, even if you did that, even if you had all congress working for nothing, it is not going to produce trillions trillions of dollars. host: you can weigh in on this conversation on our site at facebook. can you also spend us a tweet at >> i would like to ask if anyone knows how long these ponds are
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issued for, because i don't see the debt falls on a 10-year problem as being presented by the democrats. it is a 40-year problem like a morton your house. borrowing a dollar on your house does not give you a dollar owed. it means you will pay probably three times that much just like buying your morton your home. another thing i would like to point out, social security is not an entitlement. congress passed a law they would take the money out of your pay, your employer would match it, and you would get that money back later. that's money you paid taxes on. now they want you to pay taxes on your social security, and if you're retired, like i'm about to be in six months, any money i make on my meager capital gains, they want me to pay extra money on my capital agains. are you hearing all these people calling in saying they are k-401's are tanking bhaws of all the taxes they are having to
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pay. >> any response? >> well, we can talk about a few issues that were brought up here, including the entitlements question. that's really a matter of semantics. the way that the social security system works and all sorts of other entitlements, that's a technical term people use, is that people pay and get out money later. but the amount of money they get out later is not necessarily exact amount that they take when they were having money deducted, payroll taxes deducted in the past. because suddenly that would not be able to work. then you would have a defined contribution plan as opposed to a defined benefits plan. because of inplace -- inflation and all sorts of other things, and the increase in most workers wages, not everybody's wages, it
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is just not a one-to-one ratio and that was president put in, you get out. you get out what effectively people who are contemporaneous with you, when you are retired, are putting in. if we were talking about just taking out what you put in, again, and you probably wouldn't demeed the government to manage it. you could have a 401-k. i think there are semantic issues here. there are accounting issues here, and so on. the second question was -- >> the second question was what people are getting in terms of their benefits. this goes into a tweet we got as well. "seniors and the disabled only received a 3.2% c.o. l.a. total over three years. food is up at least 20%." how do you deal with that
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disparity? guest: food is based on all -- it is not just base on food or housing. if we were basing the cost-of-living adjustment on housing alone, then seniors would be rich, right? effectively because housing costs have dropped a lot. so they should maybe be getting less now. soed idea is to see what prices are doing economy-wise. what a typical am would be for the typical american household. so if you are just looking at one component, that's a bit misleading. you can also argue about well maybe the balance, the waiting of all of these different types of pricing -- the weighting of
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these different types of pricing is not fair and maybe there should be more weight given to food and less weight to housing or electronics or other areas that are falling. but, you know, is -- 100% of a senior's budget is not food. seniors consume a lot of other goods and services besides that. it is not really fair to look at one particular component, even if that might be the most salient component because people are noticing the changing in prices. host: and the final point, the impact and the issue of bond holders. if the u.s. does not raise the debt ceiling, where does the money come from? who does the u.s. pay first? is it the bondholders? guest: that's very unclear. treasury said earlier this week, they were not sure they had the authority to determine how to prioritize payments. it is not clear if they will start paying bills as they
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become due. whether they are the most important. it's not clear. i think that for financial reasons, it is important to not prior dies paying back bond holders, why should we be paying bondholders and not our troops in afghanistan or our impoverished seniors or whatever? it sounds like there is sort of a moral value implicit in making those choices. i think probably what economists are worried about, in any case, is that if you don't pay back the bond holders immediately, it has all these ripple effects in that it freezes up markets across the cannot trip, it freezes up markets across the world. people start dumping bonds and
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other assets that they have, and it could plunge us back into resession. so even if popularly, morally it sounds like, well, why should we pay back investors before we pay back poor people, the longer term quenses of prioritizing basically noninterest paints over -- non-interest payments over interest pamentse payments could be devastating. host: good morning. caller: good morning. i'll be real quick. i'm questioning section 4 of the 14th amendment in regard to the validity of public debt. this debt that we have is real. it was created by the congress. it was passed by the congress. it says it has to be paid off. so all these politicians, representatives and so forth, they are supposed to be doing
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this, and if they are not doing this, or if it goes into default, scaring the hell out of everybody, isn't it mall feasans of office where they are not upholding the constitution which they swore to uphold? host: "the validity of the public debt authorized by law including payment of debt -- por payment of pensions shall not be questioned." guest: i am not a constitutional scholar, so i cannot comment with any authority on any of those issues. i can tell you what the president has said. the president has basically said that he has consulted can his in-house attorney and they are not persuaded by the 14th amendment argument, and that obama has the authority to just say forget it, i don't need
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permission. congress has authorized these payments. why are they now saying we can't pay them? that said, i don't have information to know whether or not obama really means that. to some extent, it could mean that he would look like he was not negotiating in good faith if he really had this 14th amendment card he could pull out of his back pocket and say, you know what? i don't like you -- like what you are doing and i'm going to raise it on my own. who knows. a lot of constitutional attorneys have weighed in and said obama h others have said no, obama does not have this power. ultimately whether he decides to use is it, that is anybody's guess. >> democrat's line. good morning. >> thank you for taking my call.
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obviously most people here watching your program know that the debt ceiling needs to be raised. this is just my thoughts on it. it is just two tier. one is how to take care of the spending cuts and how to increase revenue. if we over a 16-year period, say that's the time period, and then we had four quarters in each period making four years per each quarter, we could do a 10% spending cut just through technology and fast streaming items in the government. l we will have 40% tax cuts. i think we can deal with that. the second thing is a revenue string, where the republicans wouldn't argue.
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any corporation, eble, same thing, over the course of 15 years, break it down into quarters, there is a 10% tax on the employees of the corporations that have the employees overseas. it would increase then the following quarter or the next four years to 20%, then et following -- then the following 30%, then the following 40%. if that wouldn't get jobs back into this country. none of the rich would be taxed. we would have a revenue strain. i want to know what you think about my proposal. host: thank you. guest: i think this are a lot of proposals out there. some of them really smart, some of them less smamplet -- smart. it is hard to know what all
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these effects will have. in the example of the caller's suggestion of tacking corporations based on their employees overseas, i think the concern would be, maybe we'll just drive these companies out of the united states to begin with. if they are already seeing cause to invest overseas and they don't want incur additional costs for those investments because they think they are profitable, maybe they will leave the united states to begin with. everything has drawbacks. most of the economists i have talked to about these issues have basically said, there are a lot of essentially savings we can get by making the tax code more efficient because there are so many loopholes, because the internal revenue code and the statutes relating to taxation are so unbeliefably complicated and long. these are dozens of thousands of pagesline long.
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this are dozens of pages that can be mined simply by smoothing that out, by making things more uniform, actually lowering statchtri tax rates but broadening the base. effectively brink bringing in more taxes because companies are not able to sort of mine the tax code for whatever fortuitous loopholes there might be in them. there are a lot of things the government can do. there are a lot of interesting proposals on the table. my few -- view is that our budget problems, our deficit problems, are not the fault of a deficit in ingenuity, it is a deficit of political will. every year they put out a book that says all the potential
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revenue spendings congress could take up to change the money >> we leave this conversation now to take you live to the u.s. house. >> gaveled in for a brief pro forma session.
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they will not be back in session until 10:00 tomorrow morning. the reid proposal failed. senator harry reid says the debate will continue in the senate. you can watch the senate live on our companion network, c-span 2. we go now to a house financial services subcommittee that looked at how government regulators are implementing the dodd-frank act and what the law has meant to the credit rating industry. witnesses included executive
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from the credit rating agencies, standard and poor's and moody's. toward the end of the hearing, the panel was questions about the possible downgrading of the u.s. postal credit should be congress not -- u.s.'s credits should congress not pass a resolution on the debt ceiling. >> they looked at five areas.
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they look at the fiscal aspects, they look at the monetary, they look at the economic situation of the country, the liquidity and funding, and to the political institutions that fulminate the policy. >> i realize the five. analysis. one of the points of that analysis is what structural changes the congress is going to pass. would you be able to give an evaluation on the president's proposal and if that is inefficient? >> we have to have a credible plan to reduce the debt burden. >> i serve on the budget committee where they said, we do not evaluate speeches. was there something you were able to evaluate with regard to the administration as to whether their plan was credible? >> there has been a number of plans announced by the administration.
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we think some of the plans to reduce that level and could bring the u.s. debt burden and the deficit level into the range for a aaa rating. we have analyzed it. we are waiting to see what the final proposal is to really analyze it and to finalize it. >> with regard to the harry reid plan, it would be a better plan to insure we would not get a downgrade, according to some of the rating agencies. is that true? is that a factor? i say that with regard to your analysis of july 14, say what we need to have is a $4 trillion structural change. as far as i know, the harry reid plan does not reach that level? . >> we do not comment on any
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single plan or the political choices. we are commenting on what is the level of debt burden and what is the level of deficit that must be dealt with to retain the aaa rating. there was a proposal put forth by a number of congressmen. i was commenting on those proposals. that would bring the threshold within the range of what a triple a rated sovereign debt would require. -- aaa rated sovereign debt would require. it is a decision made by the ratings committee and our sovereign analyst. we have a criteria on sovereign debts that we have published. >> i know the original plans, the grand plan, was in the four trillion dollars size.
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the harry reid plan is under that. you have not made any announcements since july 14. we have seen these other potential plans out there. you have not produced any other documents in that regard. is that correct? >> no comment. >> does moody's want to comment on this? >> the united states government is under review for possible downgrade. there is a short-term risk of a disruption. there is an issue of the level of debt in relation to the overall economy. >> i know you are not the analyst. do the plans we have seen from the white house or from harry reid, which is more specific and comes under the $4 trillion level, due date satisfied those criteria?
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>> moody's has not published anything with regard to specific parameters that the ratings committee will consider for the review. >> mr. kroll, to you want to chime in? >> i do not think ratings agencies have the wherewithal, the intellectual range, the experience to be doing great things on 100 countries around the world. i question whether this is the job of a private-sector entity to be looking at the united states government or any other government and reaching decisions on their levels of credit worthiness. what we have seen throughout history is a constant activity of being a day late and a dollar short. running around in front of the
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parade. is this new news? we are not qualified to do this. we are too small. the question is whether private enterprise should be in this business for pay. >> thank you. >> i thank the gentleman. now the gentleman from texas. >> mr. sharma, do you believe the amount of debts held by the united states poses a systemic risk? >> the growth rate of the debt burden is something that needs to be addressed for us to continue to assess the credit worthiness of the sovereign debt. >> in the political record we are seeing today, do you think is the job of the credit agencies to get involved in trying to make a decision one
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way or another on a political basis? do you think that is interference on the part of the credit rating agencies to be stepping in at this stage and making an assessment? >> sovereign debt is a large asset class that a large investors around the world and back in. our role is to provide an independent view and a full were looking you bang for investors as to what the risk levels -- forward-looking view for investors as to what the risk levels are. do we believe the risks are rising for any sovereign? we are doing the same thing we do in any other part of the world. we are speaking to the risks investors invest in. this is a large asset class that investors invest in. >> do you honestly believe that
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denied the states could default on its decdebt? >> retaining deaerating does not mean it will default. aaa means you are a low probability of default. if you done great, it means the risk has gone up. it does not mean it is going to default. if you believe that, they would change it to the default status. >> is that information to which moody's and s&p has access to that your firm cannot access? >> there is a lot of information that they have that bond ratings cannot access. by thinking is 17g-5, the rule
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that was created last year -- the ability for data that is being used by a paid for raking to be shared and access by another nrsro for an unsolicited rating. what kroll would not have it is access to underlying data that goes into a collateralized loan obligation security. clo's are closed and they are not covered in the assets that secure -- asset backed securities. there is a world of information that none of us have access to that would open up the space to competition as well as providing the investor community with
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information they could use that information was available to them. >> mr. kroll, would your answer be the same or different? ro, we do have access to most of the information. for example, we have just rated three. in the two weeks it will be five commercial mortgage-backed deals. we are privy to the same information that the oligopoly gets if they are in on those deals. >> were you disappointed or pleased with the provisions of dodd-frank related to credit rating agencies? >> i was disappointed with them. the idea behind dodd-frank was
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to create transparency, and accountability, increase competition. what happened was a lot of punitive directed the initiatives towards the big three with unintended consequences that hurt the variety of us who would consider being nrsro's. innovation and competition in the space is what is going to evolve it. dodd-frank has not contributed to that mission. >> what is the biggest challenge your firm faces? >> there is still a certain amount, or a decent number, of institutional investors paying sro's.ion to the nrs for us, we do not mind the hard
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work. we are in this to grow our business. do we be hard work and explaining our ratings to a variety of potential and current users is a part of what we do. we are trying this example of the quarterly ratings affirmation. we are leadingro, the field. we are willing to compete. it is becoming harder given the entrenchment. >> i see that i am out of time. thank you. >> we are going to provide members another round of questions. i will start that. mr. sharma, in the last six or seven months, have you had
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conversations with secretary geithner about the ratings of u.s. sovereign debt? >> chairman, like we do for all entities that issue gets -- debt, we meet with the management. treasury is the management for us. we have had ongoing dialogue. we do this with sovereign governments around the world, we do it with companies. we meet them regularly. sometimes we meet when they have updated information. we have been meeting and discussing and having a dialogue with the treasury and other parts of the administration and some members of congress to better understand what the situation is and the policies that have been formulated. they have been having a regular ongoing dialogue. >> let me restate my question.
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have you and secretary geithner had a conversation about the rating of u.s. sovereign debt? >> no, chairman. i have not had a conversation. >> this sovereign debt is not just a u.s. issue. it is a global issue, particularly in the u.s. -- the european union and the european central bank. have those entities been having ongoing dialogue on how you might be breaking their debt in the same respect? >> our sovereign analysts meet with the central banks, with treasury, and other policy makers around the world on a regular basis. we rate of about 126 countries. they are meeting with all of the people around the world all the time.
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from time to time, i do meet with central bankers and treasuries around the world to exchange views, but not on their ratings per se. >> what about countries that can monetize their own debt like the u.s. and other countries? with a country that can print money get a higher credit rating than a country that does not have that ability available to its? ? >> we explicitly say that countries that have their own currency -- the u.s. has a global reserve currency -- they do get a lift. i am not sure how much of a lift. >> it would be interesting to know what the left is for countries that can print money. >> we will publish it.
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>> when you are looking at the risk of default, what percentage of a country's government expenditures are extra it -- are attributed to interest and would begin to cause you to enhance the potential for defaults? in some countries, their interest is 5%. some countries have 25% in the interest. it is just squeezing out the amount of government expenditures and forcing additional taxes. with interest carried be a factor? >> it is. the cost of debt servicing is an important factor, as its total debt level, as is the economic
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growth prospects. they influence the introductory of the growth of the debt for the country. -- the trajectory of the growth of the debt for the country. i do not know what these threshold -- the threshold is for a country with a aaa. we can look at the criteria and send it to you. >> last point. a country where the debt levels are increasing -- the interest carried is increasing at a faster level than bddp growth in the economy -- then the gdp growth in the economy, how does that factor? >> it is a function of economic growth. what steps are going to be taken
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to address all of these things? you can change the trajectory by using a number of variables. the dollar is the global reserve currency. that will add something to the credit worthiness. >> you made comments about u.s. debt. it was not whether we were going to default or not, but what we were going to address the massive deficit this country is running. >> the main issue is the long- term growth rate of the debts as well as being deficit. that is the issue at hand. that is the more important issue. >> thank you. my time is expired. >> i just want to point out that i have the bloomberg news reports. it deals with underwriters. moody's and standard and poor's
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were sued as underwriters. i can imagine why they worse -- why they would sue you as underwriters. you are in the business of making thoughtful, professional opinions. not underwriting. the soy glad you won the case. that has nothing to do with other cases that may come. i want to pursue another area. are you in the category of a m uni type of bond. >> we are not a part of the state. we are an arm of the state. we are not a part of the state for the purposes of issuing debt. >> i have been chasing the credit rating agencies for years.
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i am a former mayor. i was giving you a taste of what i got during my nine years as mayor. when you guys came in the door, i had to jump through hoops to get readings that were below what i deserve. i did get ratings below what i deserved because my wrist or default -- risk was significant ly in a different standard. in the last couple of years -- up until 2008 -- the historic ratings of all rating categories -- aaa down to non- investment grade -- moody's standard had them at 90% more
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likely to default. have you changed your ways? are you now raging municipal and other government rating agencies as if they were corporations based on one thing, the risk of default? mr. sharma? >> we have always had one consistent scale we have tried to adopt across all asset classes. as a result, you will see that our municipal ratings are higher than other types of institutions. we have made vigorous attempts to make our ratings comparable, whether they are municipal or corporate or international institutions or whether they are in the u.s. or in europe. we are striving to gain we are striving to gain

Washington This Week
CSPAN July 31, 2011 10:30am-2:00pm EDT


TOPIC FREQUENCY China 14, Harry Reid 11, Washington 11, Boehner 7, Moody 's 6, Tesco 6, Obama 6, Mcconnell 6, Michigan 6, Detroit 6, Mr. Lang 6, Ronald Reagan 4, Mr. Falk 4, Mitch Mcconnell 3, S&p 3, Asia 3, Mr. Duke 3, Menendez 3, Afghanistan 3, Mr. Sharma 2
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